Please ensure Javascript is enabled for purposes of website accessibility

Roadrunner Transportation (RRTS) Q1-3 2017 Earnings Conference Call Transcript

By Motley Fool Staff – Updated Apr 3, 2018 at 11:12AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

RRTS earnings call for the first three quarters of 2017.

Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

Roadrunner Transportation (RRTS)
Q3 2017 Earnings Conference Call
April 2, 2018 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings and welcome to the Roadrunner Transportation Systems First Three Quarters of 2017 Results Conference Call. Today's call is being recorded. At this time, I will turn the call over to CEO Curt Stoelting. Please go ahead, sir.

Curt Stoelting -- Chief Executive Officer

Thank you and welcome to our call today. I'm joined by Mike Gettle, our president and chief operating officer, and Terry Rogers, our executive vice president and chief financial officer. Also joining us is Chelsea Mitchell, our senior manager of corporate communications. The slides accompanying today's presentation are available in the Financial Items tab in the Investor Relations section of our website at

To begin, I'd like Chelsea to read the key parts of the safe harbor statement.

Chelsea Mitchell -- Senior Manager of Corporate Communications

Before we begin, I would like to remind everyone that a number of statements made today will be forward-looking statements that relate to future events or performance. These statements reflect our current expectations and we do not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that any projected results, expressed or implied, in these or other statements will not be realized. Please be cautioned that these statements involve risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include the risk factors set forth in our SEC filings.

Our commentary today will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for reported results can be found in our press release, which we have posted on our website at

Curt Stoelting -- Chief Executive Officer

Thanks, Chelsea. So we'll move into the presentation. On the call today, we'll cover the following topics. Terry Rogers will provide a summary of our financial results through September 30, 2017.

Mike Gettle will provide an overview of business trends. I will cover future guideposts and key initiatives for 2018, and we'll wrap up with the Q&A session.Before we get into the main agenda, I have a few opening comments. Our SEC filings on Friday are another important step in our journey to return to normal filing status. We expect to file our 2017 10-K and 2018 first-quarter 10-Q in the second quarter of this year.

From that point forward, we expect to remain current in our quarterly and annual filings. We are currently in process of the 2017 annual audit. Therefore, we are not in a position today to provide detailed information regarding the fourth-quarter or full-year 2017 results. What we did indicate in our press release is that our current estimates for full-year 2017 adjusted EBITDA are expected to exceed full-year 2016 adjusted EBITDA of $7.8 million.

These estimates are subject to completion of the audit, including the impact of changes in the estimates or subsequent events that would impact our year-end 2017 results.I'll wrap up my opening comments by again saying that the fix at Roadrunner is straightforward -- hire the right top leadership team that sets the proper tone from the top and actively engages with our operating business unit leaders throughout the company. No. 2, build strong finance, IT, and HR teams to change the practices of the past. And 3) develop plans and strategies that will yield an improvement in return on invested capital and move our EBITDA margins back in line with industry norms.I'd like to personally thank our management team for all the hard work as well as our team members, our pilots, our drivers, our independent contractors, customers, vendors, and business partners for their ongoing trust and support.I'll turn the call over to Terry Rogers, our EVP and CFO.

Terry Rogers -- Chief Financial Officer

Thank you, Curt, and good morning. Summarized results cover the performance for the nine months ended September 30, 2017. The difficult operating environment from 2016 carried over into the first nine months of 2017. Revenues for the first nine months of 2017 increased 3.3% to $1.53 billion from $1.48 billion in 2016.

This is despite the, despite the distraction surrounding our restatement, we have been able to retain customers throughout this period.Net operating loss for the nine months was $14.1 million, versus $352.6 million in 2016. The 2017 operating loss includes a 5.2% increase in purchased transportation costs to $1.033 billion from $982 million in 2016. This reflects the continuance of tight market conditions, including driver shortages, that also impacted 2016. We recorded a gain on the September sale of Unitrans of $35.4 million.

We had restructuring and restatement costs associated with legal, consulting, and accounting matters, including internal and external investigations, SEC and accounting compliance, and restructuring totaling $23.6 million for the first nine months. Costs associated with the restatement and the related litigation and regulatory investigations will continue into 2018.Legal reserves increased $5.2 million related to recently settled independent-contractor litigation and pre-divestiture litigation related to Unitrans. These amounts relate to legal developments that occurred later in 2017 and 2018 but these subsequent events were recorded in the first quarter of 2017.Non-cash goodwill-impairment charges for the first nine months totaled $4.4 million, as following the sale of Unitrans, we revalued the goodwill of the remaining Ascent reporting units. And this $4.4 million compares to the non-cash goodwill impairment charges of $372.1 million in the first nine months of 2016.The net loss for the first nine months of 2017 was $67.9 million, versus $321.5 million for the same period in 2016.

In addition to the items noted, the 2017 net loss was also impacted by increased interest expense by $28 million, driven by the higher rates under our new debt structure and this also included the issuance cost of $16.1 million associated with the sale of preferred stock in May 2017, which was reflected as interest expense in the second quarter under the fair-value measurement option we elected for the preferred-stock investment.We also incurred a loss from debt extinguishment of $15.9 million. This includes $9.8 million from the early debt repayment on the prior senior credit facility, which was paid off in May with the proceeds from the preferred stock and then $6.1 million early payment premiums on the redemption of Series F shares in July upon the close and funding of the ABL facility and partial redemption of Series E preferred stock using proceeds from the sale of Unitrans in September.Turning to Slide 5, on segment performance, truckload revenues increased to $926 million, versus $890.8 million in 2016. Operating income was essentially break-even at $0.1 million, versus an operating loss of $143.4 million in 2016. The increased revenue was driven by improvements in our ground and air expedited freight offset by lower revenues from temperature-controlled and intermodal customers.

The 2016 operating loss included goodwill-impairment charges of $157.5 million. Excluding the impact of the goodwill impairment, the operating income declined from the impact of increased fuel costs, increased insurance claims, and higher equipment and leasing and maintenance costs.LTL revenues of $348.4 million were slightly lower than $355.6 million in 2016. The LTL operating loss of $14.2 million compares to $194.1 million in the first nine months of 2016. That 2016 operating loss included goodwill impairment charges of $197.3 million.

The 2017 operating loss included higher line-haul cost due to higher spot prices, as we were negatively impacted by rising costs for purchase power and the tight conditions for capacity in 2017 and increases in other operating expenses, including insurance claims and bad-debt reserves. Mike will touch on the LTL strategy more in a minute and how we are seen improving operating service and trends that we expect will translate into improved long-term performance.The Ascent segment revenues increased to $261.5 million, versus $250.3 million in 2016, and operating income improved to $15.9 million, versus $3 million in 2016. Excluding the non-cash goodwill-impairment charges of $4.4 million in '17 and $17.2 million in '16, operating income increased slightly for the first nine months in 2017 as increased volumes and revenues were largely matched by rising purchased transportation costs and rates for international freight forwarding. Both periods include the operating results of Unitrans but not the gain on the sale.Slide 6 reconciles our calculation of adjusted EBITDA from the net loss line.

As I commented earlier, the rates under our new debt, particularly preferred shares which are recorded as debt, are higher than prior senior credit facility. Additionally, the fair-value option for the value of the preferred shares resulted in $16.1 million upfront fees being immediately recorded as interest expense in the second quarter, as I mentioned earlier.You will also see that we adjusted for three additional items relative to our calculation of adjusted EBITDA for 2016. The first is to back up the gain in the sale in Unitrans. The second has losses reported on the debt extinguishment related to the payoff of our prior bank financing and the redemption of preferred stock in the third quarter.

And lastly, the restructuring and restatement expenses, which, as I mentioned, will continue into the fourth quarter and into 2018. EBITDA declined year over year, reflecting the continued difficult operating trends in the first three quarters.The last slide I'll cover is Slide 7, titled Capital In Place To Support The Operational Turnaround. A number of things were accomplished in 2017 regarding the capital structure. First was the $540.5 million investment in preferred shares by Elliott Capital.

Preferred shares are recorded as debt and we elected to treat this as debt using the fair-value measurement rules from an accounting standpoint. There are no mandatory repayments till 2023, though we did elect to repay this Series F shares in July upon the close of the new ABL facility and partially redeem Series D in September with some of the proceeds from the Unitrans sales. Elliott also provided us the ability to draw up to another $52.5 million under our new commitment for Series D shares, bolstering our near-term liquidity. The ABL facility, which closed in July 2017, and those proceeds were used to redeem Series F preferred shares and to provide operating liquidity.

These two financings provide us the capital and time to focus on operational improvements. We also sold Unitrans for $95 million and the $88.5 million of net proceeds were used to reduce Series D outstanding and for operating purposes. We remain in compliance with the terms of our preferred stock and the ABL and have available capacity under both the ABL and the standby commitment to purchase more preferred shares.With that, I will now turn the call over to Mike Gettle, our president and chief operating officer, to discuss business trends.

Mike Gettle -- President and Chief Operating Officer

Thanks, Terry. Good morning, everyone. We're now on Slide 9. As Curt mentioned, since we haven't completed our work on 2017, we are not able to provide details on the results after Q3 at this time but we will comment on overall trends.

Our truckload logistics segment faced a difficult rate environment in the first three quarters of the year, particularly in our express ground, intermodal, and temperature-controlled businesses. However, the rate environment improved in the fourth quarter and we saw rates transition from declining in the first three quarters of the year as compared to 2016 to increasing in Q4, and we are seeing an acceleration of that trend in 2018. In addition, our teams are working to improve our truck productivity and we are seeing modest improvements in this area that are adding to the favorable rate trends. Those improvements are been partially offset by some capacity decline but overall, we have favorable trends in both top and bottom line in this segment.Our key business goal in LTL continues to be improving our customer offering, as the central issue which eroded historical financial performance in the segment was the consistency of our customer experience.

So we continue in an investment cycle to drive visibility and on-time service for all our customer shipments. This is a mid- to longer-range goal and we are not letting short-term financial performance overcome that central focus. That's important to keep in mind, since the truckload rate trends, which are favorable for our truckload segment, are a headwind in LTL, considering our use of purchase power for a portion of our line-haul needs.Our teams are making good progress improving our core capabilities, whether that includes strengthening and harmonizing our procedures for handling freight in our service centers, increasing the visibility of shipment status throughout the network, or unifying our technology platforms for our newly centralized customer-service and transportation teams. Alongside those initiatives, our teams are focused on improving our lane density, yields, and the quality of our revenue, and the current market conditions are supportive of these efforts.

We are working to leverage our strengths as a long-haul metro-to-metro carrier to drive a higher proportion of our freight into our Tier 1 lanes and eliminate or reduce freight into other parts of the network that can impair both our customer experience and our financial results.I'd like to thank our LTL leadership and team for setting such an aggressive course for improving our capabilities. We're all excited by the prospect of returning the segment to its former levels of financial performance, which is a very valuable goal. At the same time, we're pleased to have the rest of portfolio of Roadrunner businesses, which are expected to improve results more quickly, and more patient capital structure that allow us to keep that longer-term goal and focus as opposed to a short-term focus which might limit the full recovery potential for this business.Turning our comments to Ascent Global Logistics, you've heard from Terry that we sold Unitrans in September since this business was non-core and didn't have strong integration opportunities. Ascent, which is our asset-free business, has a track record of a consistent top- and bottom-line growth and we expect that to continue for the balance of '17 and into '18.

On March 15, we announced the integration of our Roadrunner Truckload Plus business with Ascent's LTL brokerage international freight-forwarding and retail-consolidation businesses. Together with the investments we're making in harmonizing technology platforms, this combination will provide improved access for our teams and our customers to a unique combination of technology, a carrier base of over 28,000-strong, together with our own truckload-asset backing to deliver capabilities in the truckload, LTL, flatbed, international transportation, and retail-consolidation arenas. And while it's early days, we believe this sets up well to not only more seamlessly deliver more of our capability to more of our customers today but to have the scale to continually develop those capabilities and compete more effectively with the best-performing of our 3PL competition.So with that, I'll turn it back over to Curt.

Curt Stoelting -- Chief Executive Officer

Thanks, Mike and thanks, Terry. Moving on to Slide 11, I want to take a minute to present how we are tracking and reporting our progress on business improvements, and we're doing this over five key phases. So you see from the chart that the first phase at the bottom of the pyramid is leadership and foundation. In 2017, this phase was our primary focus, as we hired a new executive management team, changed our board leadership, stabilized our capital structure, set a new tone from the top, and developed a new strategy for the company.In 2018, we are now in the second phase of our business improvement, simplification, and integration.

I will cover our key initiatives for 2018 shortly. As we complete Phase 2, we'll move to additional phases, which include refining and expanding our business model and employing new strategies, and we look forward to moving up the pyramid. We'll be using these guideposts to track and report our progress both internally and externally.Moving on to Slide 12, this is a summary of our key initiatives for 2018. As I mentioned before, our focus in 2018 is all about simplification and integration.

Mike Gettle has already covered the key initiatives in the operations areas that are listed on this chart. I do want to just make one additional comment that we will soon provide more details related to the integration of our express services business platform within our truckload logistics segments later this quarter.We are also working to strengthen and support our operations by investing in our fleets and in our drivers. During 2018, we will invest in new equipment and move from operating leases to capital leases so that we have better control over the life cycle of our equipment. We also have key initiatives to increase driver and contractor pay and improve retention.

Also important in 2018 are our IT investments, which will improve our systems integration and customer-facing technology in each segment. IT upgrades will also support integration, help strengthen internal controls, and enable future growth.From a financial perspective, we are implementing key operating and return on invested capital metrics across all segments and all business units. As 2018 develops, we expect to move our EBITDA margins closer to industry norms.In our last slide, Slide 13, I've already covered the plans in terms of releasing our full-year 2018 and our first-quarter 2018 financial information, which again we expect to have completed sometime this quarter.That concludes our prepared remarks. We'll now take some time for your questions.

Questions and Answers:


[Operator instruction]. Our first question is from Bruce Chan with Stifel. Your line is now open.

J. Bruce Chan -- Stifel Financial Corp. -- Vice President

Good morning, gentlemen, and thank you for the update here. I just want to, I guess, focus in on LTL for a minute. You talked about the goal of increasing or improving service as being one of the primary focuses there. And I think you talked about visibility a little bit, maybe a couple of other issues there but, I guess, looking at the larger service piece, I want to dig in a little bit more into what really needs to be done there.

I mean, I imagine it's not just freight tracking that's keeping customer wins down or keeping the yield improvements down. Is it something going on with equipment, dock training, labor supply? What are really the big issues or the big components there that need to be fixed and kind of where do you stand in that process?

Mike Gettle -- President and Chief Operating Officer

That's a great question, Bruce. It goes right to kind of the heart of the issue around LTL. I think, fundamentally, our issue was around our ability to handle every customer shipment consistently, and that started with a set of procedures in all of our facilities that were completely custom to that facility. So we didn't really have a Roadrunner way of working that was sufficiently integrated enough to be able to handle our freight consistently from terminal to terminal and across our line-haul network.

That produced erratic results. And so, when a shipment was late, where visibility entered into the problem was people would call to find out the status of their shipment and we didn't have a way to adequately track that and respond. So, as we tried to escalate the issue, we weren't able to solve it as readily as needed. So it touched really not only our service center but our line-haul team and all of the elements of customer service.

So, as a result of that, our changes need to be fairly far-reaching, and that's why it's an extended period of investment and a little bit longer cycle than we'd all like. But what we're doing really starts right from the top. We brought in, in June, Frank Hurst, who, as the leader of that business, has brought in an entirely new management team. So we have new leaders in sales and operations, in our transportation team, in security, in finance, in customer service, independent-contractor relations.

And we have new managers in 10 out of our 19 service centers. This is a pretty far-reaching upgrade of our management team.In addition to that, we've centralized our line-haul operation, which was also very fragmented across our terminals, and we've centralized our customer-service team, which, again, was very fragmented across all of our terminals. We've put in place a new performance-excellence team who are 100% devoted to change management around our service centers and to developing a unified and integrated set of practices to handle our freight all across the network. So, I could go on and talk about some things we're doing in technology and other supporting costs but I think coming on to really the center point of your question, it was really around the consistency of our procedures in our terminals, how that was integrated with line-haul and able to execute consistently.

J. Bruce Chan -- Stifel Financial Corp. -- Vice President

OK, great. That's very helpful. And I don't know if you're able to give sort of an update on how those changes help in bearing out in terms of some of the operating metrics, even just volume and yields going into kind of this year. And if not, are you able to talk about how those same metrics progressed through at least the first three quarters of 2017? I don't believe we've got those in the filings?

Curt Stoelting -- Chief Executive Officer

Bruce, we're still trying to catch up our filings. So trying to publish a bunch of outdated operating metrics I don't think is helpful to anybody, but our plan is as we get caught up here in this quarter and throughout 2018, we'll be in a much better position to provide more real-time metrics. And we're still sorting out what we think the most relevant metrics are for investors. So we're committed to that but to go back and look at things that were happening almost a year ago or six months ago in terms of operating metrics with all the change that we're making, we just think it's not relevant at this point in time.

J. Bruce Chan -- Stifel Financial Corp. -- Vice President

OK, fair enough. And then just one final question here. I know the other big thing has been PT costs. And I guess if you could maybe spend a couple of minutes to talk about what you're doing to drive PT cost down.

I know you talked about increasing truck productivity but maybe in terms of recruitment on the IC side if there is something endemic to your model there that could change to sort of help that process along? What you're doing as far as recruiting and what sort of results have you been seeing?

Mike Gettle -- President and Chief Operating Officer

OK. Again, I think that's getting into the heart of some of the short-term financials. Bruce, again, it's kind of endemic within Roadrunner historically. Our line-haul operation was completely fragmented with small teams, one or two people in each of our terminals.

It wasn't as integrated as it needs to be. So the first thing that we've done is to centralize our line-haul team and to use a more harmonized set of technology to improve the control and tracking over the entire operation. The second element of what we're doing is really improving and increasing our use of ICs. We, over the longer term of Roadrunner, had a larger percentage of our load handled by ICs but as the market kind of loosened in '15 and '16, it was easier to go to purchase transportation.

And I don't think we were valuing the IC nearly enough and treating them well enough to keeping them in the network and our IC ranks had declined. So we've really worked hard to put in place a much more driver-centric culture. It starts with a new e-learning program that's totally dedicated to improving the driver experience for all of our driver managers and our line-haul team. And we are seeing a little bit less in Q4 but building here in Q1 in our LTL business a higher percentage of our loads going to ICs and we're starting to see a more steady track of increasing our IC fleet.

So that's bearing some fruit.The other thing that's been happening is that because our line-haul team was so fragmented, even where we were operating in the purchase-trans market, we weren't leveraging our spend. So now, we're working on improving our relationships and having fewer larger relationships for that purchase trans and getting ourselves out of some of the spot-market buys that we've been in. So those really are the three key elements.The other thing I'd like to mention here is our model is very helpful. If you think about what we're trying to do on yields and building our lane density, that means that our freight capacity is changing by lanes and our model is very conducive and very flexible to getting our line-haul changed to match up with current freight capacity.

So, there are some challenges working through but that flexibility is really good for us.

Curt Stoelting -- Chief Executive Officer

Bruce, just to pick up on that point, I think over time the freight profile for Roadrunner got more spread out and less dense. And Frank Hurst and his team, both on the sales and the operations and throughout the organization, are really working to go back and increase the density and really focus on our key metro-to-metro long-haul lanes, which has always been Roadrunner's strength. So, I think we've got a little diluted. We're paying the price for it now, and that's going to continue over the short run but over time, Frank and his team are working hard to get the density back where it makes sense for our customers and for ourselves.

J. Bruce Chan -- Stifel Financial Corp. -- Vice President

OK, great. Thanks, gentlemen.


[Operator instruction]. And our next question is from Troy [Inaudible] with [Inaudible]. Your line is now open.

Unidentified Analyst

Hi. Can you just talk just in general terms about management's long-term plans on what their earnings and EBITDA potential, just kind of what the long-term goals are? I know you mentioned the general statement about getting to peer levels but can you just talk a little bit about what's your current portfolio, what your long-term targets are on the EBITDA-margin potentials from what you see at this point?

Curt Stoelting -- Chief Executive Officer

Troy, this is Curt. That's a good question. At this point, we're not giving guidance in the short run, we're not giving guidance in the long run. We're still very much in rebuilding mode and in the simplification and integration phase of that, but what I can tell you is the process we're going through, which I think is the most relevant thing to know right now.

And that process is really looking at each of our business segments independently and, as we announced a few weeks ago, we're doing some reorganization within our business segments here in 2018 so that we can really compare our financial results, maybe not across the whole company to a set of peers but within each of our three segments to a good peer-group list. And we've identified the peers, we're reorganizing our segments, and internally we're working through those longer-term financial targets that will again relate to both return on invested capital as well as profit or EBITDA margins. So I think the groundwork is there. We're not ready to publish those just quite yet or make commitments to those in terms of amounts and timing but that's the process we're going through.

And I think that's appropriate for where we are at this stage in the rebuilding cycle.

Unidentified Analyst

OK, thank you.


And I'm showing no further questions. I would now like to turn the call back to Curt for any further remarks.

Curt Stoelting -- Chief Executive Officer

OK, great. We appreciate everybody's time today. We look forward to joining you on a more ordinary course, timely filing basis, as we move throughout 2018. So have a great day.


Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Everyone, have a great day.

Duration: 46 minutes

Call Participants:

Curt Stoelting -- Chief Executive Officer

Chelsea Mitchell -- Senior Manager of Corporate Communications

Terry Rogers -- Chief Financial Officer

Mike Gettle -- President and Chief Operating Officer

J. Bruce Chan -- Stifel Financial Corp. -- Vice President

Unidentified Analyst

More RRTS analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Roadrunner Transportation
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Roadrunner Transportation wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 2, 2018

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Roadrunner Transportation Systems, Inc. Stock Quote
Roadrunner Transportation Systems, Inc.
$2.50 (%)

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.