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Edited Transcript of YRCW.OQ earnings conference call or presentation 2-Nov-20 10:00pm GMT

·29 min read

Q3 2020 YRC Worldwide Inc Earnings Call OVERLAND PARK Dec 3, 2020 (Thomson StreetEvents) -- Edited Transcript of YRC Worldwide Inc earnings conference call or presentation Monday, November 2, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anthony Carreño;Vice President of Investor Relations * Daniel L. Olivier YRC Worldwide Inc. - Interim CFO * Darren D. Hawkins YRC Worldwide Inc. - CEO & Director * Thomas J. O'Connor YRC Worldwide Inc. - COO ================================================================================ Conference Call Participants ================================================================================ * David Griffith Ross Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics * Jeffrey Asher Kauffman Loop Capital Markets LLC, Research Division - MD * Scott H. Group Wolfe Research, LLC - MD & Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, and welcome to YRC Worldwide's Third Quarter 2020 Earnings Call. All in. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Tony Carreño, Vice President of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Anthony Carreño;Vice President of Investor Relations, [2] -------------------------------------------------------------------------------- Thank you, operator, and good afternoon, everyone. Welcome to YRC Worldwide's Third Quarter 2020 Earnings Conference Call. Joining us on the call today are Darren Hawkins, Chief Executive Officer; Dan Olivier, Interim Chief Financial Officer; and T.J. O'Connor, Chief Operating Officer. During this call, we may make some forward-looking statements within the meaning of federal securities law. These forward-looking statements and all other statements that might be made on this call, which are not historical facts, are subject to uncertainty and a number of risks, and therefore, actual results may differ materially. The format of this call does not allow us to fully discuss all of these risk factors. For a full discussion of the risk factors that could cause our results to differ, please refer to this afternoon'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 income to adjusted EBITDA. In conjunction with today's earnings release, we issued a presentation, which may 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 will now turn the call over to Darren. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Tony, and great to have you back. Good afternoon, everyone, and thanks for joining our third quarter 2020 earnings conference call. Before I get into the details of the Q3 results, I would like to talk about the future for a moment. The YRC Worldwide name was chosen over a decade ago when the strategy of the company involved global pursuits. Over the last several years, we have been and we plan to continue focusing our efforts on our strength of being a well-positioned North American carrier. We have never moved shipments under the YRCW name as it functions for the holding company only. Through an in-depth perception and awareness marketing study, we analyze trademarks that we own for recognition, brand approval and perception. One name continued to outperform through the study. And therefore, in 2021, our holding company will be moving forward under the brand, Yellow. We anticipate continuing under our operating brands of Holland, New Penn, Reddaway, YRC Freight and HNRY Logistics as we execute our enterprise transformation that will result in a consolidated operating system for all companies, along with a seamless, super-regional network that will cover all the geography we currently serve. I would also like to announce 2 new additions to our Board of Directors, former New Mexico, Governor Susana Martinez; and Ms. Shaunna D. Jones. Governor Martinez is the first female Hispanic governor in United States history and the first female governor of New Mexico. After her legal career as a successful prosecutor, she was first elected governor in 2010 and was reelected in 2014 in a landslide victory. Shaunna D. Jones currently serves as U.S. Director of Diversity and Inclusion at Cleary Gottlieb Steen and Hamilton LLP. Ms. Jones has extensive experience in advising corporate leaders on matters related to diversity as well as transformation and strategic initiatives. As we move forward with our work to operate as one company, Governor Martinez and Ms. Jones' background will assist us in assuring that our transition is inclusive and enhances our ability to grow while building our workforce with leaders that bring to us new perspectives and experiences. Along with our Board member additions, it is a pleasure for me to announce a new member of our leadership team. Darryl Harris, who most recently served as Chief Executive Officer of Xpress Global Systems for the past 4 years. He is a 25-year industry veteran with extensive LTL experience. Darryl will serve in the newly created position of Executive Vice President, Strategic Initiatives, reporting directly to me and will join my enterprise leadership team steering committee. I have known him for a number of years and closely followed his career as he continuously built a solid track record of success as an industry leader. Darryl is joining the YRC team at an opportune time, where his experience, talents and leadership will contribute to our enterprise super-regional network transformation, customer service enhancements and our work to build the best team of LTL freight professionals in North America. A few weeks ago, we filled our open general counsel position. Leah Dawson, who previously served as Assistant General Counsel for YRCW since 2012 has been named Executive Vice President and General Counsel. For the past 7 years, I have worked with Leah on legal strategy, corporate governance, securities and finance issues. While Leah has been an integral part of many pivotal company transactions, most recently, she was instrumental in helping the company obtain CARES Act funding, working closely with me, our finance team and the Board. I look forward to working with Leah as our General Counsel and as a member of the Executive Steering Committee. As you may have seen in today's earnings release, we announced that Jamie Pierson has resigned from the company and the Board. Jamie is a passionate and long-time champion of YRCW, and he has been instrumental in several financial transactions that helped protect an essential part of the American supply chain and the livelihoods of 30,000 families, and 2020 was no different. Jamie was instrumental in the CARES Act loan process and securing the other amendments to our credit facilities. The CARES Act loan has been an incredible success for our company, customers and employees, but it does come with limitations tied to 2019 compensation that impact certain of our key employees. And those limitations could remain in place for several years to come. Given that Jamie started with the company in mid-December 2019, the calculation of his compensation limitation resulted in a maximum annual compensation structure that was not consistent with the compensation expectations for Jamie, by him or the company. We thank Jamie for his tireless work on behalf of YRCW, and we wish him them the very best. As a result of this change, effective immediately, Dan Olivier has been appointed as interim CFO. Dan has 22 years with the company, including 12 years as the Vice President of Finance at Holland, our second largest brand, and most recently, as YRC Worldwide's Vice President of Financial Planning and Analysis. His knowledge of the company and the business will provide for a smooth transition during this interim period. Also effective immediately, James Faught has been appointed Chief Accounting Officer. James has been with the company since 2017 in financial leadership roles, most currently as controller. He has over 15 years of accounting experience, including time spent with Deloitte. Turning to Q3. During the quarter, we transitioned to managing our business in a tighter capacity environment and setting the stage for 2021. Improving tonnage late in Q3 and growth in early Q4 has allowed LTL pricing to firm up with less volatility expected moving forward. We began the quarter by securing financing with the U.S. Treasury. We drew $245 million from tranche A in July, and recently, the first $75 million from tranche B. Tranche B is to be used to invest back into our fleet, and this is significant due to the impact it will have on reducing maintenance expense, improving safety features and achieving better fuel economy, in addition to driver satisfaction. As we progress through the third quarter, we saw tonnage improve on the back end that has allowed pricing to stabilize. For the month of October, YRCW companies averaged around plus or minus 4% on contract negotiations. As we move forward, we will be focused on onboarding new rolling stock, executing on our enterprise transformation and the recruiting and training of additional YRC drivers at all companies. We also plan to drive the business forward through significant investments in technology, box drugs, containers and lift gates. I will now turn the call over to Dan, who will share additional details about the quarter. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [4] -------------------------------------------------------------------------------- Thank you, Darren, and good afternoon, everyone. Let me first say that I'm excited to be here, and I look forward to working with all of you. For the third quarter of 2020, operating revenue was $1.183 billion compared to $1.257 billion in 2019. Operating income for the third quarter was $19.4 million compared to $23.8 million in the prior year, which included a $1 million net loss on property disposals. Adjusted EBITDA for third quarter was $62 million compared to $65.9 million in the third quarter 2019. As of the end of the third quarter, LTM adjusted EBITDA was $179.8 million compared to $240.8 million at the end of the third quarter 2019. As discussed during the second quarter earnings call, we do not have minimum LTM adjusted EBITDA covenant until the fourth quarter of 2021, at which point, it is $100 million. It steps up to $150 million in the first quarter of 2022 and $200 million in the second quarter of 2022 and thereafter. Our consolidated revenue results for the third quarter reflect a 4.1% decrease in LTL tonnage per day, partially offset by a 2.2% increase in LTL weight per shipment. Including fuel surcharge, LTL revenue per hundredweight decreased 4%, and LTL revenue per shipment decreased 1.9%. Excluding fuel surcharge, LTL revenue per hundredweight was down 1.4%, and LTL revenue per shipment was up 0.8%. Sequential LTL tonnage per day trends during the quarter were as follows, and these are compared to the prior year: July, down 4.3%; August, down 6.4%; and September, down 1.9%. Preliminarily, October LTL tonnage per day was up between 1% and 2%. Total liquidity at the end of the third quarter was $454 million compared to $303 million at the end of the second quarter. Capital expenditures for the quarter were $17.3 million. As Darren stated, now that we are managing the business in a tighter capacity environment, we fully expect to increase our level of reinvestment back into the business, specifically on equipment and technology. Now for a brief update on the $700 million of U.S. treasury loans. Related to the $300 million tranche A loan, during the third quarter, $245 million was drawn, $241 million of which was used to pay deferred health, welfare and pension obligations and other deferrals and also for working capital. Related to the $400 million tranche B loan, the first $75 million was requested and funded during October and will be used for the acquisition of tractors and trailers during the fourth quarter. None of the $75 million was included in liquidity at the end of the quarter. With that, I will turn the call over to T.J. -------------------------------------------------------------------------------- Thomas J. O'Connor, YRC Worldwide Inc. - COO [5] -------------------------------------------------------------------------------- Thank you, Dan, and good afternoon, everyone. When I think about the future of our company, I'm excited about a refreshed fleet of tractors and trailers. This, coupled with a comprehensive driver training and development process, will put us in a great position to meet the needs of our customers and protect capacity in all geographies. With the increase in volumes seen during the quarter, we continued to bring back and hire more drivers as well as enhance our driving school expertise. Currently, there are not enough qualified drivers in the market to meet our needs. Consequently, we are increasing our driver academy capabilities as well as our mobile or pop-up schools to tap into the driver base who are not CDL qualified already. We also see great potential in our box truck drivers who are part of the YRCW team but not yet qualified with the CDL. We continue to innovate and adapt to protect capacity and take great care of our customers. As you heard from Darren, in addition to the tractors and trailers coming online through our tranche B investments, we are also investing CapEx dollars into information technology and equipment to improve operating performance and efficiencies. Our network optimization plans continue to make progress. While impacted by COVID-19 issues, we are continuing with our transformation plans. In early December, we will be implementing our already approved intermodal change of operations in Memphis, Tennessee. This change will allow the movement of shipments loaded on intermodal containers on the rail to and from our Western U.S. operations. This is a key change that will provide increased capacity while improving efficiencies. Lastly, I'd like to comment on our safety performance. We have sustained double-digit frequency improvement in both line-haul and CD accident performance that began in Q1 of this year. Our injury frequency performance has also improved nicely year-over-year. My thanks to our dedicated safety-minded professionals throughout our organization. I will now turn the call back over to Darren for some closing comments. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [6] -------------------------------------------------------------------------------- Thank you, T.J. As we close, I want to say that I'm excited about where the company stands today and its future. With growing volume, improving pricing, investments in equipment and technology and strong leaders joining our management team and Board, I remain confident that we are well positioned for 2021 and beyond. I want to thank our 30,000 freight professionals from coast-to-coast in North America who work every day to serve our customers safely. Their essential work and the support of their families gives reassurance to all Americans that as long as this pandemic persists, the communities we live and serve will continue to have the goods they need. Thanks for your time this afternoon. We would now be happy to answer any questions that you may have. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question comes from Scott Group of Wolfe Research. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [2] -------------------------------------------------------------------------------- Thanks for the monthly tonnage trends. Can you just talk about the progression of yield throughout the quarter and so far in October? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Well, based on my comments in the script, our contract negotiations were at plus or minus 4%. So we saw that improvement during the quarter from the previous quarter, and that continues on through October. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [4] -------------------------------------------------------------------------------- And is that showing up in reported yield trends as well? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [5] -------------------------------------------------------------------------------- Yes. With the volatility in weight per shipment. And naturally, it doesn't all go into revenue per hundredweight. But definitely with the offset of weight per shipment, we're encouraged in the progress and our pricing efforts. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [6] -------------------------------------------------------------------------------- Okay. Darren, any thoughts on how to think about either margins or EBITDA sequentially in fourth quarter out the third? I know it typically gets worse, but maybe it can get -- be better this time around, just as things are improving. Any thoughts there? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [7] -------------------------------------------------------------------------------- Yes. Thank you for the question, Scott. And I won't put any guidance around it. I will say that just like everybody in the industry and certainly in your role, Scott, we're looking at those leading indicators. And the consumer is standing up good. Trucking capacity is very tight. Housing construction and demand is strong. Imports are at record levels. And what we're seeing on the West Coast, I haven't seen in my entire career as far as the demand environment. And then you put e-commerce on top of that and the expansion we're seeing and increased exposure in those areas, I think we're in for several quarters of very strong demand, which typically allows us to make progress on pricing, manage our efficiencies well and have a positive outlook. So from my seat, I like where we're sitting. And then you put the ISM report I saw come out this morning on top of that, and there wasn't a single negative thing for trucking in that report. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [8] -------------------------------------------------------------------------------- Okay. And then my just last question, the $75 million for tractors and trailers, how much of that's going to new versus used equipment? And then how quickly do you think you use the remaining $325 million on that tranche B? And any thoughts on how much of that goes new versus used? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [9] -------------------------------------------------------------------------------- Yes. Great question. And Dan, take it away. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [10] -------------------------------------------------------------------------------- Yes. Thanks for the question, Scott. A majority of that $75 million is going to be going to new rolling stock. Ballpark, we're looking at about 300 new tractors in the fourth quarter, 950-or-so new trailers. We do have, as part of that, about 200 trailers, used trailers that is. So that's really the bulk of the $75 million. As far as the $325 million, our intent is request on for the remaining $325 million to work throughout 2021. I mean as Darren mentioned in his comments, investment in the fleet will provide significant benefits, so it makes sense to make that investment sooner as opposed to later. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Our next question will come from David Ross of Stifel. -------------------------------------------------------------------------------- David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [12] -------------------------------------------------------------------------------- Yes. Darren, as you continued to move towards one network operation, what's the facility count look like now? And because tonnage is growing again in October, is there any further rationalization? Or is that kind of a good baseline to use over the next year? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [13] -------------------------------------------------------------------------------- Yes. That is a great topic, David, with the demand environment we're seeing, and I'm going to let T.J. comment on a few. I will tell you, we're right now at 333 facilities. Earlier this year before full-blown pandemic mode, I thought we would get down to 325 by the end of the year. But as T.J. mentioned in his script, we're not giving up any geography, and we're certainly not giving up any capacity right now. So although there's a lot of opportunity for efficiencies through our network optimization and enterprise transformation, we're making the technology investments to move over to one system, but I'll let T.J. give you the update on the overall network optimization, which is still a very important part of our plan. But with the demand environment we're seeing, we'll be moving forward with caution. Go ahead, T.J. -------------------------------------------------------------------------------- Thomas J. O'Connor, YRC Worldwide Inc. - COO [14] -------------------------------------------------------------------------------- Thanks, Darren. Good question, David. Certainly, as I mentioned in the script, the Memphis intermodal change of operations is a really big change for us and has lots of benefits as well as adding capacity to them from the West, also some efficiencies included there. So that's probably the biggest one we'll see the balance of this year, although there are others. We said at 333. The ability to get some more done perhaps by the end of the year is definitely a possibility. But right now, we are favoring protecting capacity, making sure that the information transformation strategy stays intact and that the IT work associated with that is also moving along in tandem with the operational changes. So yes, you may see a drop a little bit below 333. I think we've provided a guideline or a target earlier this year of maybe 325 by year-end. So we probably won't hit 325, but it'll be somewhere between there and the 333 we have now. -------------------------------------------------------------------------------- David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [15] -------------------------------------------------------------------------------- And then on the purchase transportation side, shipments were down, but that number was up, even with lower fuel. Can you break out how much of that is rail PT? How much of that is line-haul, truck PT? And how much might be pickup and delivery PT? And where do you see that going forward in terms of getting some of that back in line with historical norms? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [16] -------------------------------------------------------------------------------- David, I'll let Dan get broke in right and take that multi-tiered question. So Dan, take it away. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [17] -------------------------------------------------------------------------------- Thanks, Darren. I appreciate it. And thanks, David. Good question. I don't have the specific breakdown of all the components of it. But what I'll say is our PT costs for the third quarter increased roughly $16 million or about 10% year-over-year, to your point. A little more than half of that increase actually was related to the 35% year-over-year revenue growth at HNRY Logistics, and the rest of the increase was more or less driven by the impact of the driver shortages that T.J. referred to in his comments, so I'll let him give you some color around that. -------------------------------------------------------------------------------- Thomas J. O'Connor, YRC Worldwide Inc. - COO [18] -------------------------------------------------------------------------------- Sure. On the PT, so on the over-the-road purchase trends, that definitely increased year-over-year. And keep in mind, David, we've got the 29% cap now under the contract, and we can use that any way we choose as opposed to the last contract we had. We had a cap of 26%, of which 20% could move on the rail, 6% over the road. So we have -- the good news is the -- there's a lot of cost efficiencies with the use of the rail and where we don't have sufficient driver capacity using over-the-road purchase trans is a good thing. The area that is expensive for us but is good to have is the local purchase trans or cartage expense, where if we don't have sufficient pickup and delivery drivers, we're able to use partners that can help us with the pickup and delivery. It's a little more expensive. We'd prefer to do it with our own folks, but it's very good to supplement capacity where needed. -------------------------------------------------------------------------------- David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [19] -------------------------------------------------------------------------------- Yes. That was a problem for you guys a couple of years ago on the local cartage cost that you were trying to get down. Has that crept back up? Is that something that you think can be resolved through more box subscribers? -------------------------------------------------------------------------------- Thomas J. O'Connor, YRC Worldwide Inc. - COO [20] -------------------------------------------------------------------------------- There were specific markets, West Coast, think about California, perhaps, where we've been constrained more so than other parts of the market. We've got -- and the new contract, also the box truck language. So we've got approximately 400 non-CDL box truck operators that were designed specifically to help develop CDL drivers over time but also to reduce the local purchase trans expense associated with cartage. So I view that as temporary. We did a heck of a job last year after we got the contract negotiated of really reducing that expense on the cartage side, and I expect us to get back to that run rate here shortly. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [21] -------------------------------------------------------------------------------- Yes. And when I prioritize that working capital and the strength of our working capital number right now, Dave, I think, technology, intermodal containers, box trucks, that is where we're putting that working capital to work. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- (Operator Instructions) And our next question comes from Jeff Kauffman of Loop Capital. -------------------------------------------------------------------------------- Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [23] -------------------------------------------------------------------------------- Congratulations, everybody. A couple of detailed questions for Dan for modeling and then kind of a bigger-picture question. So Dan, I saw the share count was about 48.7 million on the quarter. Where should we be thinking about the share count for, say, 2021? Because I'm assuming not all the shares were in that 48.7 million number or were they, the new shares? -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [24] -------------------------------------------------------------------------------- Yes. Jeff, we would expect that the share count through 2021 would stay relatively the same as what it is at the end of the third quarter. -------------------------------------------------------------------------------- Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [25] -------------------------------------------------------------------------------- Okay. So 48.7 million is the right number. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [26] -------------------------------------------------------------------------------- Yes. Ballpark, yes. -------------------------------------------------------------------------------- Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [27] -------------------------------------------------------------------------------- Okay. And you mentioned about $325 million of planned CapEx next year based on tranche B. What other spending will be in that number? And what are we probably looking at, at an all-in CapEx basis, 2021? -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [28] -------------------------------------------------------------------------------- Well, as you know, we don't give specific guidance about our total CapEx. The $325 million will be primarily for rolling stock, tractors and trailers. There is some other CapEx we'll have on top of that like Darren mentioned. I think T.J. mentioned on containers, box trucks, liftgates and technology. Those are the primary components of anything over and above tranche B. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [29] -------------------------------------------------------------------------------- Yes, and we're just not prepared to give any concrete guidance on that at this time, Jeff. -------------------------------------------------------------------------------- Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [30] -------------------------------------------------------------------------------- Okay. Going to switch gears to HNRY. You mentioned a terrific 35% growth rate year-on-year. How big is HNRY today? And do we think about breaking that out in 2021? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [31] -------------------------------------------------------------------------------- No. I'm not thinking about breaking it out in 2021. We continue to put resources there, and I'm very pleased with the growth trajectory of HNRY Logistics. We haven't given any recent guidance on HNRY. Certainly, the COVID-19 situation changed a lot of those things dramatically. But as you've seen in other reporting, from a logistics standpoint, the truckload sector and the residential sector is just seeing really tremendous demand at HNRY logistics. So it's good timing. I'm pleased with their growth, and I'm looking forward to reporting out on it. And once it becomes impactful to the overall business, I'll start giving you all the detail on that. But from a customer perspective, I think it's been an excellent fit. Our consolidated sales force has a nice expertise and bringing it to the marketplace. And along with many other businesses, working remotely has performed very well for HNRY Logistics, and they haven't missed a step. -------------------------------------------------------------------------------- Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [32] -------------------------------------------------------------------------------- Okay. And then one final question. Dan, we're consolidating the brands in-house. We're rebranding Yellow. I'm assuming we're staying with Swamp Holly Orange But is there any kind of house cleaning that might occur in 4Q as we take a look at the IP and other brand names that the company has developed over time? I assume if we take an adjustment, we'll see it. But I just wonder, for modeling purposes, how should we be thinking about that goodwill and any IP on the balance sheet? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [33] -------------------------------------------------------------------------------- Jeff, we're -- Jeff, this is Darren. We hold several trademarks, as you know, and keep many of them active, just for this specific purpose, and we're certainly proud to bring Yellow to the holding company with the approval ratings and other pieces that, that particular brand had from the marketing studies that we did. But at this time, we don't anticipate changes in other areas that would result in any of those directions. But if we do, then certainly, we'll do the proper notifications on that. But right now, we don't anticipate changes to other brands that would have any adverse impact. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Our next question comes from David Ross of Stifel. -------------------------------------------------------------------------------- David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [35] -------------------------------------------------------------------------------- Just to follow up quickly on HNRY Logistics there. On the EBIT line, was it a drag or a benefit for the overall company in the quarter? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [36] -------------------------------------------------------------------------------- Dave, it was flat. -------------------------------------------------------------------------------- David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [37] -------------------------------------------------------------------------------- Okay. And then a clarification question on the contract renewal increases. You said October was plus or minus 4% on rate discussions. Did you say that, that was the average for the third quarter as well? Or is that a step-up from some lower number in 3Q? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [38] -------------------------------------------------------------------------------- It was a step-up of a full percentage point from Q2. But for 3Q, the 4% was consistent. And based on the leading indicators that I mentioned, we would anticipate continuing to see positive momentum in those contract negotiations. And we've had some really big ones come through recently that we saw good momentum in. So I'm encouraged by what we're seeing happening in that area, Dave. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Our next question is a follow-up from Jeff Kauffman of Loop Capital Markets. -------------------------------------------------------------------------------- Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [40] -------------------------------------------------------------------------------- I didn't expect to get back in that quick. Darren, one last question, bigger picture. I don't know if you're going to want to answer this, but I'll ask anyway. When we got the labor contract news, there was a presentation that you had where you said, "I think we can get to a 96 OR within, say, 2, 3 years' time. This is based on our projections of x and how we can change network." Now obviously, COVID has changed a lot of things, and the tranche A and B loan have changed a lot of things. And I guess what I'd ask you is, is 96 still the multiyear target as we think about Yellow in its entirety? And have the changes that have occurred, if I sum them all up, made you more bullish or more cautious about getting there over a 2-, 3-year time frame? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [41] -------------------------------------------------------------------------------- Jeff, first of all, I appreciate your persistence in this area, and thank you for letting me address it. When I think about our company right now, I think about the operational execution runway that we've got, that we don't have any major debt maturities, any big labor negotiations prior to 2024. So we've got that 3-year runway right in front of us, where we've got some really neat things happening. The equipment refresh that we're going through right now and that we're going to see in the coming year is just a great opportunity for this company. You know what equipment means, all the benefits we get out of it and the financial benefits that it brings, not to even mention the driver satisfaction uptime and all the other things. But bottom line, that's going to be a nice contribution to our profitability moving forward. Enterprise transformation, just getting these companies on one operating system and having that visibility across all of the networks is going to be tremendous, not only for our internal operations, but for our customers as well. And then when I think about the overall network optimization, where we've got duplicate resources in so many areas and drivers and such high demand, and that's not changing anytime soon. With the demographics that are out there around the CDL-qualified driver in the United States, retirements are at record levels because of COVID and concerns moving forward in that area. So I think the demand is going to be strong. I think T.J. has got us positioned greatly to get the drivers that we need, and so does the contract that we've got in place. So when I roll all that up together, that's where when I closed out the script and I talked about my confidence in this organization moving forward. And then lastly, Jeff, I'll say, and you'll be disappointed here, with all that confidence, the volatility that's out there in a number of areas and also if we took the cautious approach about a second wave and other things that, from a working capital standpoint, we're well positioned to weather those storms, but I'm not prepared to give any additional guidance at this time, other than with all the things I've listed, I have a lot of confidence in our employees and what can be accomplished in the coming quarters. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would like to turn the conference back over to Darren Hawkins for any closing remarks. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [43] -------------------------------------------------------------------------------- Thank you, operator, and for all of those that participated and listened in. I just appreciate your interest in our company. And on behalf of our employees, thank you for joining today. So long. We'll see you later. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.