Less-than-truckload (LTL) carrier YRC Worldwide (NASDAQ: YRCW) announced a bunch of changes in its third-quarter report — likely none bigger than its draw on the second tranche of a $700 million Treasury loan.
After months of scrutiny over the Treasury’s underwriting of a relief loan to YRC and the Defense Department’s designation that the carrier was a “business critical to maintaining national security,” a classification allowing it to qualify for the loan, YRC has drawn the first $75 million and will begin replacing rolling stock in the fourth quarter.
On a Monday conference call with investors, management from the Overland Park, Kansas-based company said they plan to take delivery of 300 new tractors, 950 new trailers and some used trailers before year end. The remainder of the $400 million tranche is expected to be exhausted in 2021 on similar equipment purchases.
While the commission overseeing pandemic relief lending is continuing its investigation into the loan, which produced concerns that a pressured Treasury Department may pull at least a portion of the funds, YRC appears to be in the clear and on the path to replacing its aging fleet.
In the past, management estimated that savings could amount to roughly $10,000 per tractor annually due to reduced maintenance costs, improved fuel mileage and an increase in vehicle up time. The difference in owning versus leasing and the new technology and crash avoidance systems, likely to drive insurance expenses lower, have also been cited as additional tailwinds.
YRC reported a third-quarter loss of just $2 million, or 4 cents per share, significantly better than consensus estimates of a loss of 25 to 28 cents per share. The result was also much improved from the 2019 third quarter, a $16 million loss.
C-suite shuffle; new board members
The company announced that Jamie Pierson has resigned his board seat and role as CFO. Dan Olivier, VP of financial planning and analysis, is stepping in to fill the role on an interim basis. Pierson’s departure didn’t “reflect any disagreements” with the company, according to the release.
The company’s 10-Q filing with the Securities and Exchange Commission said Pierson’s anticipated severance agreement with the company will include 18 months of base pay and a separate payment of $550,000. He will also receive a prorated portion of previously granted restricted shares scheduled to vest in December and February.
Darrel Harris has joined YRC in the newly formed role of EVP of strategic initiatives. Most recently he was CEO at Xpress Global Systems, a floor covering transportation company that was sold by U.S. Xpress (NYSE: USX) in 2015. Harris was listed as “a 25-year industry veteran with extensive LTL experience.”
YRC announced the addition of two new board members, former New Mexico Gov. Susana Martinez and Shaunna Jones. Jones has a “legal background focused on transformation and strategic initiatives.” She is the current U.S. director of Diversity & Inclusion at New York-based law firm Cleary Gottlieb Steen & Hamilton.
Back to Yellow
With roots dating back to Yellow Cab Transit, YRC announced that the holding company, YRC Worldwide, will operate under the Yellow brand again.
Holland, New Penn, Reddaway, YRC Freight and HNRY Logistics will continue to operate under their current names.
Third-quarter results
Tonnage declined 4% year-over-year, with revenue per hundredweight excluding fuel declining a little more than 1%. Management said mid-single-digit tonnage declines were recorded in the first two months of the quarter, with tonnage dipping only 2% in September. In October, tonnage was up between 1% and 2%, with contractual rate increases up approximately 4%. The consolidated operating ratio declined 30 basis points to 98.4%.
The carrier generated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $62 million, down 6% year-over-year. Last 12 months’ adjusted EBITDA was $180 million, well ahead of the upcoming $100 million covenant, which isn’t effective until fourth quarter 2021.
YRC ended the period with liquidity of $454 million and debt of $1.16 billion.
Commission still pursuing Defense Department
Last week, the congressional commission provided a brief update into its investigation of the YRC loan. The commission previously sent inquiries to the Treasury and Defense departments asking for more information regarding their decisions to grant relief money to the carrier. The commission’s contention with the Defense Department stems from its national defense designation of YRC and the department’s late response to the commission’s inquiry.
In the latest oversight report, the commission acknowledged receipt of an Oct. 22 letter from the Defense Department. That was more than a month and a half after the response time initially granted by the commission. The report said the Defense Department’s delay was “inexcusable” and that its answers were “incomplete.” The commission said it would provide more on the matter in its November report.
The New York Times published an article on Friday saying it had obtained and reviewed the Defense Department’s letter and that the response provided “limited explanation,” only reasserting the department’s claim that YRC met the vital to national defense classification.
The letter was also reported to have answered another question from the commission regarding whether or not the department had contacted other carriers to seek replacement shipping services. The article said the Defense Department stated in the letter that it didn’t communicate with other carriers and didn’t have a contingency plan if YRC were to fail.