Yellow Corporation

Thank you, operator and good morning everyone. Welcome to YRC Worldwide second quarter 2019 earnings conference call.

Joining us on the call today are Darren Hawkins, Chief Executive Officer of YRC Worldwide; Stephanie Fisher, Chief Financial Officer of YRC Worldwide; and T.J. O'Connor, Chief Operating Officer of YRC Worldwide and President of YRC Freight.

During this call, we may make some forward-looking statements within the meaning of federal securities laws. 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 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 Web site 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 Web site. The format of this morning's call will be lead by Darren to provide the company's multi-year strategic plans, including current initiative, followed by Stephanie, who will provide an overview of the second quarter financial results.

T.J. will then provide an update on our operational initiatives.

Following prepared remarks Darren, Stephanie and T.J., will be able for question and answer session. I'll now turn the call over to Darren.

Thank you, Bri and good morning everyone. Thanks for joining our second quarter earnings call.

I believe we have successfully reset the runway in 2019 to provide the foundation for our multiyear strategy. The ratification of our labor agreement, which occurred in the middle of Q2, was our number one priority for 2019.

However, the timing of the labor agreement delayed operational benefits, which combined with the April 1 effective date for wage and vacation benefits, costs us several 100 basis points of financial performance. These results are not unexpected and reflect customer hesitation, while waiting for a fully ratified labor agreement along with muted demand.

Fortunately, the customer concern was removed with the announcement of the ratified five-year labor agreement, and now we have a clean runway to execute our strategic plan. The transformation pain experienced in Q2 paves the way for the $60 million to $80 million of margin expansion expected in 2020.

Concerning 2019, transportation market conditions have been softer, suggesting that the U.S. economy and the freight economy are not entirely in sync.

Transportation volumes appear to be more sluggish as company supply chains were faced with tariffs, and other situations that forced them to overstock inventory. I am encouraged by the July tonnage trends, while still negative when compared to prior year, the trends are moving in the right direction.

We have been very methodical in our approach to stabilize our company over the last several years as the Moody's upgrade recently highlighted. Cost reductions are well underway with a current annualized run rate of $25 million for those initiated in Q2 through headcount reductions and back office consolidations.

In a family of companies, it always makes sense to have operational and customer engagement coordination. We will continue to move rapidly with consolidation efforts to be more efficient with our equipments, our facilities and our people.

As we look beyond Q2, our path forward is clear. We are focused on rapid deployment of our multiyear strategic plan to truly demonstrate the profitable earnings power of the company.

The first step in that plan was the labor contract and the implementation of the operational flexibilities. With that hurdle out of the way, and a clear five-year runway, the next steps are network optimization, capital structure changes, continued capital investments and customer growth.

Network optimization is basically driving full utilization of our property and freight density footprint across our asset based companies. Make no mistake, there is power in having four asset brands in the marketplace, as each brings unique value to our customers with three best-in-class regional LTL companies and then the size, scope and endless capabilities of YRC Freight to go anywhere in North America.

As at any holding company, YRCW will be intentional in expanding revenue across the individual brands, but also in achieving the efficiencies available by having the companies work in closer coordination. We have identified approximately 25 service centers for consolidation by the end of December 2019, bringing our projected service centers to approximately 360 by the end of the year.

And we believe this just scratches the surface. The disposition of these owned and leased properties in the near term are expected to generate additional cash proceeds of approximately $25 million by early 2020.

As this opportunity is repeated throughout our network, we will build density by reducing miles, gain efficiencies with our equipment, while also reducing our burden on continued capital investment needs and improve our service to customers. The potential of rapidly benefiting from network, equipment and resource efficiencies, at the same time, we are expanding our customer value proposition is an exciting opportunity for YRCW.

The next important step in our long-term strategic plan is the pursuit of new financing alternatives to replace our existing term-loan to provide less restrictive covenants, reduce interest rates and extended maturity. Concerning growth, taking great care of the customer is always at the top of the list.

Creating simplified engagement for customers and an increased service offering are a critical part of our strategic focus on customer growth and engagement. We recently announced the addition of Jason Bergman as Chief Customer Officer, and a restructuring of our sales group from four distinct sales teams to a consolidated enterprise sales organization.

This allows customers to buy regional, national and brokerage services from a single point of contact at YRCW, while introducing existing customers to additional operating companies that they are not currently doing business with. I'm proud of the team at HNRY Logistics as they continue to see double-digit revenue growth, even in a tough environment.

HNRY Logistics is the perfect complement to the LTL competency of Holland, New Penn, Reddaway and YRC Freight. Inclosing, the core of our business is taking great care of the customer, understanding what they want, then delivering it where and when the customer directs.

We will always have a truck ready to go, a team of people behind it and the latest technology to make it simple and easy. I will now turn the call over to Stephanie to share some more details around our financial results.

Thank you, Darren and good morning everyone. For the second quarter 2019, YRC Worldwide reported consolidated revenue of $1.27 billion, which is down from $1.33 billion or 4.1% when compared to prior year.

Operating income for the second quarter was $14.3 million compared to operating income of $50.9 million in the second quarter of 2018. Additionally, the company reported adjusted EBITDA of $57.6 million for the second quarter 2019 compared to $100.8 million for prior year.

For the trailing 12 months, adjusted EBITDA was $278.7 million compared to $286.4 million in 2018, a slight decline of $7.7 million or 2.7%. Turning to the operating statistics, YRC Freight reported second quarter 2019 year-over-year LTL tonnage per day was down 6.8%, which is due to a 5.2% decrease in LTL shipments per day and a 1.7% decrease in weight per shipment.

Additionally, year-over-year, LTL revenue per hundredweight, including fuel surcharge, was up 4.3% and LTL revenue per hundredweight, excluding fuel surcharge, was up 4.8%. Finally, year-over-year LTL revenue per shipment, including fuel surcharge, was up 2.6% and up 3% when excluding fuel surcharge.

Moving to the region segment. The second quarter 2019 year-over-year LTL tonnage per day was down 4.9%, which is due to 5.1% decrease in LTL shipments per day with weight per shipment being flat year-over-year.

Additionally, year-over-year LTL revenue per hundredweight, including fuel surcharge, was up 1.4%. And LTL revenue per hundredweight, excluding fuel surcharge, was up 1.8%.

Finally year-over-year LTL revenue per shipment, including fuel surcharge, was up 1.6% and up 2% when executing fuel surcharge. Our second quarter results can be summarized with the following two key areas.

First, our year-over-year decrease in revenue is largely driven by lower volume levels, which is a result of weaker demand and customer concerns around the labor agreement as we move through the quarter. I am however encouraged by July tonnage trend.

For YRC Freight, July LTL tonnage was down 3.3% and regional LTL tonnage was down 1.5%. While still negative, the year-over-year comparisons have improved from June.

Second, our salary wages and employee benefits expense increased by $26.3 million, or nearly 3.5% when compared to second quarter of 2018. This increase was largely driven by wage and benefits expense, as well as increase in workers' compensation expense.

The year-over-year increase in employee benefits was mostly due to the increase in vacation from the new labor agreement. We recorded approximately $12.4 million in one-time charges for vacation benefits in the second quarter.

Of which, $8.4 million related to full year 2018 and $4 million related to the first quarter of 2019. As described by our credit agreement, a portion of the full year 2018 charge, or $4.2 million was excluded from adjusted EBITDA.

By the end of 2019, the full amount of the 2018 vacation charge will be excluded from the LTM adjusted EBITDA. Next, the dollar per hour increase as of April 1, 2019, impacted the quarter by approximately $25 million.

This increase was mostly offset by a decrease in labor hours from lower volume levels as the overall net increase in wage expense was approximately $4.1 million or 1% when compared to prior year. As a reminder, the hourly wage increase will be partially offset by the contractual rate increases for health and welfare benefits that are effective on August 1, 2019, as the new rates are capped at less than half of the hourly rate increases previously experienced in recent years.

Finally, our 2019 quarterly results reflect an increase of nearly $8.5 million in workers' compensation, expense primarily attributed to the adverse development of current and prior claims, of which $5.8 million related to our regional segment. Going forward, we will still be disciplined in our pricing strategies.

We continue to see positive pricing trends with respect to our recent contract negotiations, which are trending above 5% for YRC Freight and approximately 3% for the regional. In response to the softer freight environment, we are taking additional actions in the near term to rationalize our operating costs structure.

We have moved forward with certain headcount reductions across the organization, including the consolidation of the New Penn corporate service into our Overland Park headquarters. These actions are intended to drive cost savings in salary, wages and employee benefits as we restructured shared services.

Coupled with the sales reorganization that Darren referenced earlier, we estimate combined savings in salary, wages and employee benefits of approximately $25 million on an annualized basis. Moving to our balance sheet.

The company is currently pursuing new financing opportunities, including a potential refinancing of the term loan agreement to provide for less restrictive financial covenants, as well as potentially lowering interest rates, and extending the maturity of the facility as compared to our current term loan agreement. Changes to our capital structure should provide the operational run way that allow us to invest in the multiyear strategic plan and position the company for stability during weaker demand cycles.

As it relates to our current term loan agreement, on June 30, 2019, the funded debt to adjusted EBITDA ratio was 3.12 times compared to a maximum credit facility covenant of 3.25 times. On July 25th, YRC Worldwide received an upgraded rating from Moody's Investor Service.

Our rating was upgraded to B2 from a B3 with a stable outlook. Regarding our liquidity, our cash and cash equivalents and managed accessibility under the ADR facility at June 30, 2019 was $157 million, which is a decrease of $47 million compared to December 31, 2018 and is comparable to liquidity levels we reported in March.

We used $38 million in cash flow to invest in revenue, equipment and technology in second quarter. In closing, improving the age of our fleet remains a priority.

Since 2015, we have progressively improved our fleet and with expected investments through the remainder of the year, we will have upgraded nearly 5,300 tractors or nearly 38% of the tractor fleet, and more than 12,300 trailers or 28% of our trailer fleet. I'll now turn the call over to T.J.

Thank you, Stephanie and good morning everyone. In the short time since the ratifications of National Labor Agreement, on May 14th, we're making good progress on several of the items that provide meaningful operational benefits related to the contract.

Jobs ebb and flow and hiring has shown substantial improvement recently due to the higher wage rates, as well as benefits package, which has resulted in increased hiring and utilization of both part-time and dock only employees across all three companies. This has resulted in less over time hours being worked and higher usage of lower cost, part-time employees over the last several weeks as more of these employees have come on board.

Interest in our non-CDL box truck driving positions has been excellent. We already have over 170 drivers up and running in these new roles as of the end of July.

Our expectation is to have 350 of these drivers on our payroll in Q1 of 2020. These company drivers allow us to reduce usage of high cost, local purchased transportation providers and also to improve the service we provide our customers.

As a reminder, these box trucks positions do not require a CDL and thus, opens up the pool of drivers to a much wider population of potential employees. We are well-positioned to increase our use of over the road purchase transportation as business levels warrant under the terms of the new agreement.

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

Can you just go through again the facilities and how many you're closing? And with the proceeds, I think you said $20 million or $25 million of proceeds from those facilities.

Could you talk about what gains you expect from those sales? Just remind us if those gains get included in adjusted EBITDA, and maybe just more high level.

Do you think you can grow tonnage in a period where you are shrinking the footprint?

Scott, this is Darren, and I'll start with that. 25 consolidations between now and end of the year.

And keep in mind that our first consideration is always the customer. These consolidations are rule of thumb internally as always that we either improve or maintain existing service to those customers.

It just creates the efficiencies from freeing up the properties but also the operational efficiencies, moving forward. We do believe we're just scratching the surface with that when you look at our total facility count.

And we increased the revenue per terminal and also what we call door pressure, and just utilizing better asset utilization of our current property footprint, so encouraging there. Before I let Stephanie reference your financial question around the network optimization, I'll go into the tonnage discussion just for a moment.

Certainly, Q2, we have some challenges company specific around the labor agreement and customer concern around that. Fortunately, that was mitigated once we announced the ratification.

We did see tonnage improve, still negative, but saw improvements in July. Also keep in mind at the same point last year at the regional companies we were aggressively pricing to govern tonnage in the networks, because of resource constraints.

So with the external environment, it is tough to predict what exactly is happening out there with the violent movements on a daily basis around tariffs and other pieces. But at the end of the day, for the pieces we can control and what we can see externally, I feel good about where we're at with pricing.

And I certainly feel good about the band of yield and tonnage that we're currently working in for the national company and for the regional companies. And Stephen, I'll let you fill in some of the pieces around the network optimization from a financial standpoint.

Yes, sure. As it relates to the proceeds on those 25 consolidations that we expect to close by the end of the year, there will be $25 million of cash proceeds as it relates to those.

A majority of those 25 consolidations will be properties that we exit and no longer have operations in. And there is one property that is slated for -- it's actually under contract already, it's slated for closing here at the back half of the year that actually we will continue operations out, so that part of it will be included in adjusted EBITDA.

But most of the gains that we anticipate over the next few months here will not be included in adjusted EBITDA.

And then from a tonnage standpoint, if I missed it. Can you give the monthly tonnages again?

And then the July tonnage that you gave, Stephanie, wasn't clear to me. Was that the total tonnage or just the LTL tonnage?

So I gave -- in my comments, I gave the LTL tonnage and the numbers that I'm going to get here also LTL tonnage by month; So for YRC Freight, April was down 5.5%, May was down 7.6%, June was down 7% and July was down 3.3%; and then for the regional LTL tonnage, April was down 5.3%, May was down 5.9%, June was down 3.9% and July was down 1.5%.

Can you just say -- do you ever give July sort of revenue or yield up data. The tonnage is getting less negative.

Are you seeing any sort of deceleration in the yield trends?

So the piece that we do give as it relates to pricing for July is the contract renewals that we're seeing. YRC Freight is experiencing about 5% and the regionals are experiencing around 3%.

And then just last question. So liquidity, we typically see a meaningful step up in your liquidity in the second quarter, and that didn't happen this year.

Do you think maybe -- do you have a thought on why do you think maybe some of that just gets pushed out into third quarter? And then just remind us where you feel like you need to maintain a minimum level of liquidity?

Sure, Scott. So as it relates to second quarter specifically, a couple of things happened as we think about the strategic initiative and labor the contract.

We made some significant investments in the second quarter as it relates to those investments. And so some of that cash outflow related to the strategic initiatives and the operational flexibilities from labor contract.

The other peace as it relates to the second quarter and will be the case as we go forward. We are changing the mix of our buy versus lease.

So in the past two years, we have been in 100% lease from a CapEx perspective. We are changing that mix and trying to move more towards buy.

Obviously, we are not going to get a 100% there. But we expect, for 2019, that we will be in that 25% buy range, 75% lease range.

So that is also accumulating some of that -- or taking some of that cash that we would normally build in the second quarter. As it relates to third quarter, we typically see an uptake in that liquidity as well.

It probably won't be as strong as it has been in prior years, just because of the muted volume that we're experiencing right now so we probably won't have as much of an uptick in third quarter and especially as we continue those investments from a strategic initiative perspective. But we'll still try to manage in that $150 million to $200 million range to the extent we can.

But knowing that we've got significant investments that we need to make in 2019 to make these strategic initiatives and labor contract beneficial for us.

So we're at the lower end of the liquidity range and the macro is pretty tough. Why are doing more cash CapEx instead of leases?

Part of it is lease buyout. So as we roll to that four and five year lease terms that we have from a lease perspective, we are doing a significant amount of buyout.

But we also want to get back in that group that we continue to buy equipment as opposed to lease, because lease puts pressure on our EBITDA margins.

I want to apologize. I ended up getting on the call a couple of minutes late.

Stephanie, I think I heard about half of what you were saying on the desire to refinance the credit line. How are those discussions going?

What's the receptivity in the market? And do you think it's something we might be able to get accomplished this year?

So the process from a financing perspective started in earnest immediately following the labor agreement. We knew that was one of the things that would be beneficial to us to have that behind us before we did that.

Those talks in my opinion are going very well. We are actively working that front.

And we are looking for an option that's accretive to shareholders and we do expect things to get moving rather quickly. Obviously, from a close perspective, it's hard to say.

But we would like to something done by the end of the year if we can make that happen.

And you mentioned the workers' comp accrual. That was in the reported numbers for both freight and regional.

Correct?

That is correct, yes.

And then one quick question for T.J. T.J., can you help me understand why the yield improvement for the regional group is lagging, not just national but kind of lagging the rest of the industry.

Is there something in the optics there that just makes it look lower? Or is there something unique going on?

Well, Jeff, I think certainly on the regional side, if you think back a year ago, we had shared the fact that the regional carriers were not able to adjust the way that YRC Freight could to business opportunities in the marketplace. So one of the carriers had excess demand and found their shipment size growing and more truckload entering their market.

So they tried to control that, or in fact did control that through pricing actions. So the yield reflects that.

So it creates a tough year-over-year comp.

And Jeff, this is Darren. And I would call out that weight per shipment is the reason we've also remained flat.

We're in a lot of the industry, broader industry, we saw that deteriorating overtime. So that plays into the mix.

And the other comment on the liability claims phase the majority of that occurred at the regionals, creating that several 100 basis points change year-over-year. So overall, when I look at the regionals, the best in class they have really good service, I like the position they're in I think the July tonnage is demonstrating that.

Darren, one last follow-up. You're a couple months out from the contract now.

You've had a little bit more time to study and analyze it. How are you feeling, more optimistic, the same you felt right after the contract was announced?

Have you found some things that you didn't initially think of when the contract was signed?

Yes great question, Jeff. The rapid deployment of our multiyear plan, certainly, the first key piece of that was getting the contract wrapped up.

And we've already talked about the headwinds of accruing for that contract and then not getting it ratified to the middle of the quarter. But when you think about the box trucks that T.J.

mentioned and already the success we've had in deploying those. Keep in mind, that's a $60 million annual piece of local cartage that we're attacking.

When you look at how we've benefited from the new wage and position mix, from a part time worker and a full time dock worker versus our CDL employees that wage mix is important and also goes into the bucket of overtime and reducing costly overtime. And that's a $250 million annual bucket.

So I like where we're headed. I like that we're getting these things executed on quickly.

And then when you combine those with our other strategic initiatives that aren't part of the $60 million to $80 million in margin improvement that I mentioned in 2020, the largest being the network optimization effort. It certainly gives me confidence as we move forward.

And concerning those capital investment and equipment, what we're doing there. We're still seeing the upside on every time we introduce tractors, trailers and new technology into our network.

So I'm excited about our future. I think we've made the right decisions and we had to reset the company in the second quarter and there was planning associated with that.

But it's good to have that in the rearview mirror as we focus on 2020. The other piece about 2019 is the aggressive cost controls that we put in place.

Many of those started in Q2, but that won't stop. We'll continue to gauge external market conditions and respond with appropriate costs controls to keep the company on track.

And I think the exciting thing is, this is not all done in 12 months. We haven't talked about 2021 or 2022.

But there are other targets, other objectives, other goals that kind of play out as we get beyond 2020, correct?

Absolutely, and that's one I referred to it is we have got a five year runway here that's just been reset. And certainly a lot of these things we can accomplish in the near-term.

But many of the bigger opportunities, they show up in 2020, and this just continue to mature. And when I say we're just scratching the surface, I believe there is incredible opportunity moving forward for network optimization, not just from an efficiency, a productivity standpoint, but also from a overall service standpoint for our customers.

We're in a pretty unique position here with the network that we got and we can leverage that, moving forward.

Okay. Well, thank you very much.

Thank you for answering my questions. And lot of targets out there, best of luck.

So with the union deal, can you talk a little bit about the timing of savings after the ratification, because there is certainly some things you were able to implement quickly, but how long until you really seeing benefits and getting the costs out? if the cost of the deal was retroactive to April 1, do you have a line in the sand as to when the benefits of the deal really started?

Yes, David certainly, that's an investment. And the reset that we just got in Q2, the worst behind us, because of the accrual starting April 1 and not having any of the benefits.

And you're right to think that everything just doesn't ramp up overnight even through we're several weeks under the contract right now. T.J.

gave you the progress on the box trucks, and that's certainly moving quickly. I'm impressed with the pipeline on part time employees and those pieces.

Certainly, the purchase transportation aspect as you see our headcount remains lapped in the quarter, but our purchase transportation come down. And I'm referring to that good portion of purchased transportation.

And volumes will have a lot to do with the full execution of the purchase transportation piece. But certainly, we still have access to a good portion of at YRC Freight.

So this will be a ramp-up but we will see the improvements coming steadily. And then outside of the labor agreement, the cost controls that we talked about around headcount reductions, back office consolidations, the network optimization efforts, all of that just to further contribute to really demonstrating the profitable earnings power this company has moving forward.

And that's our complete focus.

And then just to get little bit more clarity around the numbers, you talked about the $25 million in cost reduction fairly quickly related to those headcount reductions back office consolidation. And then you talked about $60 million to $80 million of margin expansion EBIT growth.

I guess a function of yield volumes and the cost savings next year. Is that on top of $25 million?

And is there anything in between the $25 million that's now been achieved and might happen in the second half of the year, that's going to be before this $60 million to $80 million?

Thanks for allowing me to clarify that, David. The $25 million is just around hard dollar savings and headcount and back-office reductions on an annualized basis that we began initiating in Q2, but that will fully ramp up between now and the end of the year, because of the timing of some of those consolidations that we mentioned.

Now the $60 million to $80 million of margin improvement in 2020 is just associated with the operational flexibilities of the labor contract. It does not include these other cost control pieces, or the network optimization efforts.

So that's -- in my mind that's also have a balancing the uncertainty we're seeing in the external market right now. And I'm encouraged, because we've got a lot of opportunity around internal initiatives that can be accomplished, regardless of what we're seeing happening in the overall freight economy.

As far as the quarter went and maybe be the first part of the year, did you see any benefit from them in New England Motor Freight shutdown?

Certainly, at New Penn, we saw some tonnage lift. Certainly, we were repricing that.

So it wasn't a huge tonnage list. But it was also important as we went in, and maintained our yield focus in what we saw as a rational pricing environment that that allowed us to more to work with and also helped us out in Q2 as we were going through the labor negotiations around having that extra tonnage in the network.

Just a couple of follow-ups here. I want to just to go back to David's last question.

Just want to make sure to clarify. The 25 service centers that you're consolidating by the end of the year, I know that's up from 15 to 20 that you talked about previously.

That's not included in [Technical Difficulty] that $25 million number related to New Penn or that $60 million to $80 million. Is that correct?

That is correct, Jack. And by the way, welcome to your first YRC worldwide earnings call.

Thank you. Good to be here.

Okay. So just to -- I guess a little more detail around that.

I mean what's the expected cost savings related to those consolidations? Is there a way to quantify that?

Yes. And when we talk about it, what we've listed first is what we get from either property sales or a lease avoidance moving forward, depending on how the property is classified with us.

The real benefit as I see it with network optimization naturally is the operational benefits moving forward in your local pickup and delivery operations and also in creating density as you launch into the network from a land haul perspective. So that's where the piece really gets exciting.

And when I say we're just scratching the surface, that's what I'm referencing. Naturally, going into an environment like we are when we've got 380 plus service centers and we look at revenue per terminal and also fully utilizing the capacity is available in many of our terminals, it's underutilized right now.

This gives us a pretty long opportunity that we can move quick on, and especially depending on what the economy is doing, have the customer see either better service, or the same service they're getting today but also see our cost equation change dramatically, just from an operational efficiency standpoint. Now we haven't publicly put numbers around that.

But in my view, that's where the big opportunity for network optimization comes into play. And that opportunity is one that we can continue to get at on a -- as we cascade this opportunity moving forward.

We've get an entire team on it. We've got Scott Ware as our Chief Network Officer whose mission is to accomplish these things on a daily basis.

And I like where it's headed.

Okay. That's good to hear, Darren.

Thank you. And then, I guess what everyone is trying to get at is sort of -- now we've seen the investments take place in the business and the new labor agreements struck in the second quarter.

How should we be thinking about operational performance in the second half of this year? I guess, is there a way to think about these cost savings and how they are going to phase-in in the third and the fourth quarter?

I'm just trying to get a feel for relative to normal seasonality, how would you expect the business to perform as we move through the balance of the year, given all these company specific items that are really -- should be helping in an incremental way as we move through the rest of this year and into next year?

Certainly, the cost controls that I've mentioned in the back office consolidations, the headcount reductions. Those pieces will benefit us between now and the end of the year.

The network optimization discussion around the capital that that makes available, we'll see some of that. The big operational benefits from that will certainly ramp up in 2020.

And as we -- although, we're moving at a rapid pace on the operational flexibilities from the labor negotiations and rectification, those will fully come into play in '20 as well. So '19, Q2 was definitely the reset point and these investments will continue in Q3 and Q4.

But certainly, we're pointing to 2020 as the opportunity for all of these to come in fully ramped up.

And then, Stephanie, going back to the potential to get a new credit agreement in place, and the flexibility that can provide from a finance perspective is very clear obviously. But could you maybe talk -- and Darren, and I guess maybe this maybe for you, but would love to get both of your opinion on it.

What sort of holdbacks, no, that's not the right word. I'm just trying to think about the operational headwinds that your current capital structure puts on the business that maybe you can get some flexibility around when things are optimized under new credit agreement.

Is there a way to think about that, or talk about that for a minute?

So I think really the way we're thinking about the financing opportunity is a way to provide additional liquidity to the business for some of these investments that we've talked, either from reduced interest rates or reduced annual amortization payments. That's the way we're really thinking about this financing opportunity, and really an opportunity for us to provide the runway to continue to with these strategic initiatives.

We know that we still have a few years left on our current term-loan, but there are few things in there that limit us, at least from a strategic growth perspective and we'd like to see those get removed.

And I'll just add that we've got an experienced leadership team at YRCW that has significantly improved adjusted EBITDA and cash flow since 2011 when the company, there was a lot of uncertainty around the company. It certainly has been a challenge and there has been quarters where we have shown steady improvement and then have some flat lines along the way as we renegotiate labor agreement.

But what I do want to say is what was just accomplished with this ratification is something that we hadn't done in 10 years. And in the middle of all of that, we continue to invest in trucks, and trailers, and technology.

And layout a multiyear strategic plan that is very reasonable from an aspect of the majority of the operational flexibilities have already had pilots, or they've been used at individual operating companies. And they're proven that's certainly when we select those.

And then from a network optimization standpoint, even though this is formalized and will be in the public view, it's something that we've been quite successful at in the past. This is just going to be on a much larger scale on moving forward.

So when you put all of that together and certainly from a property footprint and others and then add in the idea of a new capital structure that certainly I believe we've got nice opportunity around, based on the real estate footprint this company has. That's what makes this strategy one that I can speak about from a confidence standpoint, Jack.

Well, that's great. And it's exciting to see what's happening.

Thanks again for the time guys.

I just wanted to piggyback, I guess, on the last line of questioning there and the commentary. Darren, one of, I guess, the structural issues with the company has been kind of this cumulative impact of under-investment or inability to invest in the equipment, and the cumulative impact that that has caused on the operations.

And I just wanted to get your or Stephanie's view or T.J.' s view on, when do you think that kind of neutralizes and you guys are playing on a level playing field with respect to that particular aspect of the business?

And I think the question is important in the context of kind of your capital structure comments, because refinancing, I totally understand why that makes sense and provides a little bit more breathing room. And at the same time, it's a little bit also like kicking the can down the road.

And I'm just trying to get at what really needs to happen from a financing standpoint to really solve that part of the structural problem that's been impacting the company for last 10 years or so.

Yes, when I think about that, it certainly plays into this five year runway and your strategic plan that spans over multiple years of that five-year runway. But that's really geared toward the first half of the runway.

And that is getting the company that $60 million to $80 million in margin improvement in 2020 certainly positions us to do the truck, trailer and tech investments that we need to get back closer to our competitors. And certainly with what we've had to work with over the last several years, I think we've done a nice job in mitigating that.

And even most recently, keeping the fleet age more consistent with it not getting older, but actually to have a leapfrog effect and move forward on that in a larger way is at the heart of our strategy, and also around our execution piece in 2020. And I think that's what gets us to the point of significant improvement and investments in trucks, which is delayed and also where a great opportunity for us.

Most of our competitors, they've already achieved the benefit of a fresh fleet. We have been working hard on our improvements but we haven't had the benefit of a fresh fleet.

And we also had the headwind of leasing a lot of that equipment. So as we work through that, I think the true profitable earnings potential and power of this company will be much more evident.

So if I understand you correctly, it sounded like a more 2021 event where we start to see this maybe step function improvement in the earnings power of the company as you guys have some of the incremental capital to invest in the fresher fleet to bring the average age down. Is that a 2020 event, if I'm hearing you correctly?

I think it ramps up. But also we're going to continue -- we are seeing improvements in fuel miles per gallon in other areas, because of what we're doing from our land haul network and the new equipment that we're introducing.

And I don't plan on allowing that to fade. Now depending on volumes, naturally, there is a CapEx lever to pull there but also that would have the freshest part of your fleet running if volumes were to change dramatically at some point, because of external economic activity.

But outside of those things, absolutely, with the performance that we're talking about and then I believe there is a very logical path to in 2020 then that capital investment comes to fruition as planned and certainly why I listed it as one of our top priorities.

Let me ask a couple of very quick follow-ups, if I could. One is, you talked about the retroactive nature of the plan April 1st and you talked about several hundred basis point of impact in the quarter and customers pulling back.

Any sense on the actual -- if you could a finer point on what the OR impact was from those idiosyncratic events in the quarter? So we can kind of normalize that and see what the performance could be in the back half, if you could help us out there that'd be appreciated.

Well, I'll start and then let Stephanie weigh in on that as well, and I'll start with the customer. From a customer aspect, naturally there was concern, because of the amount of attention that something that hasn't been done in 10 years was playing out.

So there was a concern that. But I will say, a lot of our customers, they realized how important it is for YRCW to be part of the LTL landscape.

And they supported strongly through that. It also led and built up to the sales reorganization that we just completed, was really focusing completely on the customer.

And now that we have point of contact across all our companies representing five companies, four asset brands plus HNRY Logistics to the customer. I think the secret to the growth and moving forward is with those existing customers that aren't utilizing all of our operating companies.

Now, specific outside of the customer to your question, on the several hundred basis points, certainly, volume played into that. The wage piece, Stephanie, hasn't mentioned it yet, but she'll address this, August activity around the health and welfare piece that will help explain that as well.

So just a couple of things on couple of items for the quarter specifically. The $12 million for vacation that really related to either 2018 or first quarter 2019 that's about 1% from an OR perspective.

There's 100 basis points there. Then as it relates to the health and welfare benefits that we'll see here in August for the third quarter, part of the contract negotiations, we're negotiating a rate -- an increase in that rate that was much less than we saw in 2018.

In 2018, we saw about $0.75 to $0.80 increase in our health and welfare contributions. As part of the contract, that increased.

This August there's actually only $0.40 for a majority of our funds. So that will be a significant assist.

As we think about the dollar an hour increase that we gave on April 1, that will help offset some of those cost increases that we took from a wage perspective. The other piece for the quarter specifically, are the wages overall.

Not necessarily kind of something we shouldn't think about going forward. But that $25 million in additional wages was also about 2% increase on -- or 200 basis point increase overall.

One very last quick one from me, on the term loan -- I guess on the refinancing. Can you just explain to us if you can, how many people do you have to negotiate with?

How many holders are there, and what do you need in terms of the majority of the people to sign on to a new structure? I'm not totally familiar with that process.

So I think it'd just be helpful in understanding your ability to get that through?

Amit, we've really said about all that we can say on that front. I will say that it's a process, fortunately or unfortunately, that we've been through many times.

And we have experience in this. And we know how to move it along.

So my expectation is that something that we'd continue to move forward at a rapid pace, and that's how I've approached those discussions. But that's really all we can say about it.

Certainly, we'll go public with that at a moment's notice once it's complete.

Thank you operator. And before we end the call, I just like to recognize the 31,000 YRCW employees across North America.

Your hard work, your focus on working safely and taking great care of our customers, is absolutely instrumental to our success. Thanks again for joining us today.

Please contact Bri with any additional questions that you may have. This concludes our call.

And operator, I'm turning the call back to you.