Roadrunner Transportation Systems, Inc. (NYSE: RRTS) reported another big loss in the second quarter of 2019 that was far worse than the consensus estimate, which called for break-even results. Also, the company said it would focus on the service offerings that have the best potential to increase return on invested capital.
Consolidated results
The asset-light logistics service provider reported a 14 percent decline in total revenue year-over-year to $481 million. The decline was largely due to lower expedited logistics revenue (air and ground) and lower volumes in all of the company’s truckload (TL) offerings. RRTS’ operating loss of $138 million included $108 million of impairment charges. Excluding the charges, the adjusted loss of almost $30 million was close to three times the loss incurred in the second quarter of 2018.
RRTS reported a more than $13 million decline in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the period at a loss of $7 million.
“Challenging market conditions resulted in revenue and adjusted EBITDA declines in the second quarter, primarily driven by low demand in air and ground expedited logistics at Active On-Demand. As we have stated in the past, Active On-Demand is a well-positioned logistics business that can exhibit short-term volatility. Historically, these variations moderate over longer periods and do not impact our ability to capture improved revenue and profits as expedite demand improves,” said Roadrunner’s Chief Executive Officer Curt Stoelting.
Results by division
Ascent Global Logistics saw a 10 percent year-over-year decline in total revenue to $130 million, which was driven by a 19 percent decline in domestic freight management revenue. Lower brokerage load counts, lower rates and planned fleet reductions were the reasons for the division’s revenue decline. Adjusted EBITDA in the division was down 12 percent primarily due to lower demand.
Active On-Demand, which provides premium mission-critical air and ground transportation solutions, suffered a 38 percent decline in revenue to $101 million. Lower expedited freight demand resulted in lower volumes and rates in the air fleet and brokerage offerings. Adjusted EBITDA turned negative in the period at a $0.5 million loss compared to a nearly $10 million profit a year ago. Reduced air volumes and rate declines were the reasons for the decline.
On the call, management said that supply chain disruptions are the driver for revenue in this business. The unit did well last year when truck capacity was extremely tight and this winter as inclement winter weather persisted. While any inventory pull forward from new tariff concerns could provide a tailwind, management said that they haven’t seen any such inquiries yet.
Less-than-truckload (LTL) revenue was basically flat at $117 million. Excluding backhaul and fuel surcharges, revenue increased more than 3 percent in the division. Revenue per hundredweight (excluding fuel) increased 3.8 percent as adjusted revenue per shipment was 4.4 percent higher in the period. Management noted that freight mix and yield on that freight continued to improve in the quarter. However, these improvements were offset by an increase in equipment repair as the company continues to address its previously deferred maintenance of equipment. Adjusted EBITDA was 18 percent worse year-over-year at a more than $3 million loss.
Regarding progress in the LTL division, Stoelting said, “Our ongoing efforts to eliminate unprofitable freight and increase density in key lanes continues to produce improvements in our key operating metrics.” RRTS was successful in increasing the percentage of revenue on its Tier 1 “major metro” lanes, up roughly 500 basis points year-over-year. That said, management noted that the overall market for LTL demand is “softening,” which could impede their efforts to eliminate poorly priced freight and increase density in key lanes. When asked if the full-year $100 million adjusted EBITA target for 2020 was still on the table, management said that the goals for LTL “will likely take longer than hoped.”
Truckload TL revenue declined 3 percent to $141 million. Revenue for the company’s dry van TL offering increased, but increased costs offset these gains. RRTS continues to “right size capacity” in its TL unit. Temperature controlled revenue declined in the second quarter, but this was primarily due to fleet downsizing. Intermodal revenue declined 8 percent, which was in-line with the broader domestic intermodal market. Intermodal rates per load increased by an unspecified amount. The TL division recorded a $1 million loss in the period compared to a modest profit last year.
So far in 2019, RRTS has invested more than $50 million to upgrade its fleet throughout all of its segments. “Because of the timing of the equipment delivery schedules and transition costs, we have not yet seen the full benefits from these investments,” said Stoelting.
“Narrowing” focus
The company continues to navigate its corporate restructuring following a re-capitalization that lowered its debt load in February 2019, a 1-for-25 reverse stock split in order to comply with New York Stock Exchange listing requirements in April 2019 and the announced amicable departure of its Chief Financial Officer in June 2019.
Management also made reference to “narrowing” its focus to the logistics and asset-light LTL segments as a means of improving return on invested capital and the company’s valuation. RRTS continues to look at all options as they advance the corporate restructuring. In the process, they will continue to assess the fleet and address equipment needs in each unit. They are adjusting their capacity commitment in the TL offering as they attempt to turnaround that division. They are also entertaining divestiture of a business unit as they “look at all available options.”
“Despite a challenging second quarter, we remain committed to our longer term business plans to improve operating results, followed by growth and optimization opportunities. Challenging market conditions can cloud progress in making structural improvements, so it’s important to note that we are encouraged by our teams’ efforts in all segments,” said Stoelting.
Shares of RRTS are trading 7 percent lower on the news.
