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Greetings and welcome to the Roadrunner Transportation Systems 2017 Second Quarter Financial Results Conference Call. Today's call is being recorded.
At this time, I’ll turn call over to CEO, Curt Stoelting. Please go ahead, sir.
Thank you and good morning. Welcome to today's conference call. Joining me on the call today are Mike Gettle, our President and Chief Operating Officer; and Terry Rogers, our Executive Vice President and Chief Financial Officer. Also joining me is Chelsea Mitchell, our Senior Manager of Corporate Communications.
The slides accompanying today's presentation can be accessed on the events and presentations tab in the Investor Relations section of our website at rrts.com.
To begin, I’d like to Chelsea to read the statement – the Safe Harbor statement. Chelsea?
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 experienced 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 to our website at rrts.com.
Thanks, Chelsea. On the today’s call, we'll cover the following topics; I’ll provide some opening comments, Terry Rogers will provide a summary of our consolidated and segment financial results for the second quarter and for the first half of 2018, Mike Gettle will cover business trends for each of our segments. And then I’ll provide an update covering our business integration, simplification initiatives and our outlook. And then finally, we’ll wrap up with the Q&A session.
Moving on to Slide 5 in the deck. We are growing our business reporting comparable 2018 revenue growth of 10% for the second quarter and 17.4% for the first half of 2018. We are reporting positive business trends in all segments including sequential improvements in our LTL segment as turnaround investments continue. As expected we are seeing strong top and bottom line comparable growth in our Ascent Global Logistics segment.
Our Truckload and Express Services segment continues strong revenue growth in air and ground expedited business while we are making structural improvements in temperature controlled, scheduled dry van and intermodal services. We also recently announced that we are working with Barclays to identify the optimal capital structure to support our long-term business plans.
Before we go any further, I'd like to personally thank our management team, our team members, our pilots, drivers, independent contractors, customers, vendors, lenders and business partners for all their ongoing support. As we've stated in the past during the turnaround process there will be some bumps along the way. However, we remain committed to our long-term and lasting improvement in each of our segments and in our consolidated bottom line results.
I'll turn the call over Terry Rogers our EVP and CFO.
Thank you, Curt, and good morning. This morning I’ll cover summary of our operating performance for the second quarter and first half of 2018. Before I start the presentation, I’d like to remind you of the sale of our Unitrans subsidiary on September 15, 2017. I’ll be highlighting the impact of the Unitrans numbers in our year-over-year comparison for the second quarter and the first half.
Turning to Slide 7, the summary of the financial performance for the second quarter. Revenues in the 2018 second quarter excluding Unitrans rose 10% over 2017 driven by higher revenue for TES and Ascent segments and despite declining year-over-year revenues for LTL. However, LTL revenues have improved sequentially from the first quarter. I’ll discuss the segment drivers in a moment.
Net operating loss widened to $11.4 million in the 2018 second quarter versus $9.5 million of operating losses in 2017 excluding Unitrans. The 2018 results include a $4.7 million restructuring charge to right-size the fleet facilities and support functions of our temperature controlled business. The net loss of $42 million in the second quarter of 2018 also widened from the second quarter of 2017. The net loss in the second quarter of 2018 included an increase in interest expense to $34.2 million from $28.4 million in the prior year second quarter. The increase is driven by higher interest expense related to the accrual of dividends and changes in fair market value of the preferred shares which are recorded as debt.
Also the benefit from income taxes on a pretext loss in 2018 was lower than 2017. This reflects both lower statutory corporate income tax rates and the non-tax deductibility of the preferred dividends and changes in fair market value of the preferred shares which flows through as interest expense. The 2017 second quarter net loss included $9.8 million of debt extinguishment from the early repayment of the prior senior credit facility from proceeds of the preferred stock investment in May 2017.
Turning to Slide 8, summarize our segment results for the second quarter of 2018. I want to remind you again that we changed our reporting segments beginning in 2018 as discussed on our first quarter earnings call. For financial reporting purposes, the primary difference between our prior segment reporting is that the Truckload plus brokerage business has been moved from the Truckload segment to the Ascent segment.
The prior year numbers in our filings in this presentation reflect the new segment structure. Additionally, please note that for reference purposes, we have posted our historical results using the new segments on a Form 8-K filed on Friday, August 3.
Turning first to our TES results. With an increase in revenues of 14.1% to $300 million from $262.8 million in 2Q 2017 driven by continued strength on our ground and air expedited freight and related brokerage which had higher volumes and rates. From a cost standpoint, purchase transportation costs and yield were negatively impacted by capacity reductions in our intermodal and over the road operations.
TES operating income declined to a loss of $0.8 million from operating income of $3.8 million in last year’s second quarter, but was essentially flat year-over-year when adjusting for the $4.7 million of non-recurring restructuring costs related to the structural changes at our temperature controlled business. TES adjusted EBITDA rose 5.1% from the 2017 second quarter to $10.1 million.
Turning to LTL. Revenues were $117.2 million in the second quarter were lower than the prior year due to lower shipping volumes partially offset by higher fuel charges and rates. The volume decline was driven by planned reduction in selected service areas and addressing unprofitable business.
LTL adjusted EBITDA was also lower year-over-year to a negative $2.8 million versus a negative $2.3 million in the second quarter 2017 reflecting the lower volume as well as increased IT costs. On a sequential basis, we saw improved performance in our LTL segments from the first quarter of 2018 and expect continued sequential improvement moving forward.
Lastly, the Ascent segment had a strong second quarter as Curt mentioned in both its top and bottom line performance. Adjusting for the Unitrans results in 2017, the second quarter of 2018 generated 15.7% higher revenues, 40.4% increased operating income, and 30% increased adjusted EBITDA compared to the second quarter of 2017. The performance was driven by growth in retail consolidation and domestic freight management, partially offset by weaker performance in the international freight forwarding. Mike will provide more insight on the segments in a few minutes.
Turning now to Slide 9. The year-over-year adjusted EBITDA excluding Unitrans decreased to $6.7 million in the second quarter of 2018 from $9.1 million in 2017 second quarter. This was partially due to higher corporate costs including higher audit fees as we finalize the SEC filings for 2017 in the first half of the year. We also increased costs as we strengthen corporate capabilities and finance internal audit, human resources and fleet services.
Next I will turn to the results for the first half of 2018. Going to Slide 11. Revenues adjusted for Unitrans impact on 2017 increased to 17.4% to $1.128 billion. The net operating loss of $24.8 million in the first half of 2018 was an improvement from the $29.9 million operating loss in 2017 excluding Unitrans $4.5 million of operating earnings. Both periods had cost related to the restatement process or operating restructuring totaled $15.5 million in 2018 and $16.8 million in 2017.
The net loss of $65.6 million in the first six months of 2018 was higher than the loss of $57.8 million in the first half of 2017, largely attributed to increased interest expense of $43.8 million in 2018 versus $34.9 million in 2017.
The portion of the interest expense related to the preferred shares increased to $38.7 million from $25 million. This interest expense is not deductible for tax purposes and along with lower statutory rates drove the lower benefit from taxes in 2018 of $3 million versus $12.3 million in 2017. Adjusted EBITDA for the first half of 2018 improved to $9.9 million versus $6.1 million in the first six months of 2017. We will cover some of the detail in a moment.
Slide 12, the explanation for the Truckload & Express Services performance year-to-date is similar to discussion for the second quarter. Revenues up 27.7% and adjusted EBITDA up 46.7% to $626.1 million and $20.8 million respectively. The performance was driven by increased ground and air expedited freight business as a strong demand environment drove higher volumes and rates and increased adjusted EBITDA. The strong performance was partially offset by increased purchase transportation costs, equipment lease, maintenance and IT cost.
Less-than-Truckload revenue of $230.3 million were essentially flat from the first half of 2017 as higher fuel surcharges and rates were offset by lower volume as we refocus our service area. The operating loss and adjusted EBITDA for the first half of 2018 wider than the first half to 2017, contributing factors of the increased linehaul costs driven by tight market conditions for purchase power and higher spot purchase costs as well as other operating expenses including equipment lease, facility costs and bad debt expense. We also sell volume reductions as we focus on driving volume toward strategic lanes.
Less-than-Truckload continues to make strides in driving the operational improvements process started in the second quarter of 2017, as we can see in the sequential improvement for the first quarter to the second quarter.
Ascent results for the first half of 2018 adjusted for the impact of the Unitrans operations in the first half of 2017 showed across the board improvements in revenues, operating earning, operating income and adjusted EBITDA.
The domestic freight and retail consolidation operations both generated revenue and earnings growth somewhat offset by softness in the international freight forwarding business. Revenue ex-Unitrans were up year-over-year by 14% to $279.6 an adjusted EBITDA increased – by 25% to $16.4 million. Mike will provide more color on the segments in this discussion of business trends.
Slide 13 is my final operating slide. Showing adjusted EBITDA for the first half of 2018 versus the first half of 2017. Again we need to strip out the Unitrans results in 2017 for comparison. The TES and Ascent segments posted improved year-over-year performance for the reasons discussed previously, which was offset by lower performance in the LTL segment. However, we are positive on the long-term impact that structural changes. At the structural changes, we are making it healthy to have on future results.
My last slide is Slide 14. We're focused on maintaining liquidity to work our way through the restatement process and execute on our business strategy. On August 3, we reached an agreement with our preferred stock investor to extend the terminations date for the remaining $17.5 million sale of E-1 preferred shares from July 30 until November 30.
We have over $40 million of available funds for operating purposes under our ABL facility in a series E-1 commitment. With our SEC filing requirements up-to-date, we have increased – we have had increased dialogue with equipment purchase financing sources including the captive finance companies OEM manufacturers and other lenders. We plan to use this financing to replace aging rolling stock and add capacity over the last 12 months. Lastly as Curt mentioned, we have engaged Barclays Capital to review financing alternatives to improve our long-term capital structure.
Now let me turn the call over to Mike, our President and Chief Operating Officer, who will discuss the trends...
Good morning, and thanks Terry. I'm pleased to be able to share some additional commentary regarding the operations in each of our segments. Looking at Chart 16, our Truckload & Express revenue in Q2 was $300 million and increased by 14% over 2017 Q2 and our adjusted EBITDA was $10.1 million, and increased by 5% over that same period. Our Truckload & Express strategy is centered round integrations that improve our scale and right size our capacity to address both scheduled and unscheduled freight needs.
During the second quarter we completed the integration of multiple temperature controlled businesses into one business, including right sizing fleets, facilities and support functions. We incurred non-recurring operation restructuring costs $4.7 in Q2 related to these activities.
Our over-the-road capabilities in Truckload & Express include scheduled and expedited dry van temperature controlled and flatbed fleets and their related brokerage. Their revenue growth in Q2 has been driven by expedited ground brokerage which is primarily management fee based and generates lower relative margins. We've had modest increases in fleet revenues versus prior year which represent improvements and rates, partially offset by reductions and fleet size primarily due to the temperature control restructuring.
Our Q2 intermodal revenues has grown 7% from improvement in rates which has been partially offset by reduction in load counts, which include the impacts of scaling back operations and unprofitable terminals and customers. And our air revenue in Q2 has been up strongly with good performance in our owned and leased fleet. A tight market continues to favorably impact demand and rates.
Turning to LTL on Chart 17. Our revenue in Q2 was $117 million, and increased by 4% over 2017 Q2. And our adjusted EBITDA was a loss of $2.8 million and was approximately $500,000 higher than a year-ago.
Our strategy at Roadrunner Freight is to focus on our core competency as a metro-to-metro long haul carrier, this includes three main elements. Reducing our pickup and delivery footprint to remove unprofitable areas and redeploy assets to more focused lanes, using sales and pricing disciplined to drive volume into strategic lines and driving improvements in shipment reliability and visibility through investments in technology, centralization of our teams and process harmonization across the network.
Our Q2 revenue decline of 4% was driven by reduction in shipments per day of 17% which reflects are focused on reducing a pickup and delivery footprint, reducing and profitable freight, improving our freight profile and building density in strategic lanes. Our shipment counts declined this focus produced improved Q2 results and revenue for shipment and yield with revenue per shipment including fuel, increasing by 13% and yield including fuel increasing by nearly 7% as compared with one year-ago.
And the 6% increase in weight per shipment is also reflection of our improving freight profile. We are enjoying success and driving more revenue into our metro to metro Tier-1 lanes was 60% of our revenue in Q2 in Tier-1 lanes was compared to 58% in Q1 and 53% in the second quarter of 2017.
From a cost perspective our focus on yield reducing service areas and improving our freight profile is improving our pick up and delivery costs and while linehaul cost continue to be a headwind versus a year-ago we have the second sequential quarter of modest improvement. This is benefiting from our focus on mode optimization which is reducing our reliance on purchase power in increasing direct rail and IC usage.
Finally, while we continue in an investment cycle in the segment it's pleasing to see that our focus on the quality of our offer and freight profile and yield and building density has reduced our Q2 loss by $4.9 million or over 16% versus Q1.
Turning to Ascent Global Logistics on Chart 18, our revenue in Q2 was $145 million and increase by 15.6%, our adjusted EBITDA was $8.5 million and 30% higher in 2017 Q2. These comparisons are after eliminating the revenue and EBITDA of Unitrans, which as in September of 2017.
Our strategy in Ascent is based on improved integration, which enables easier access to more of our brokerage capabilities by more of our customers and we're making investments to consolidate our IT capabilities into one domestic transportation management system.
Our domestic offering enjoyed revenue growth driven primarily by tight truckload market allowing us to improved freight selection with more disciplined pricing. This was enhanced by modest increases in load counts. While the rate of decline in international freight forward and declined modestly from Q1, we continue to have a soft performance as a result of a biannual project performed in 2017 which isn’t scheduled to be performed in 2018 together with selected customer impacts from U.S. in foreign tariff activity.
Our retail consolidation offering continue to enjoy strong growth from both existing and new customers. This was driven by 2017 investments, which we made in the areas of technology, warehouse racking and importantly in our management team, all of which has improved our capacity and our execution. In addition, we believe Walmart's On-Time In-Full or OTIF requirements are helping stimulate demand from smaller customers.
That concludes our comments on our operating segments, and I'll turn the presentation back over to Curt.
Thanks Terry and Mike. I’ll pick up on Slide 19. We will give a quick update on our strategy and our outlook. On Slide 20, as we've reported in the past, we are tracking and reporting on our business improvement in five key phases. We are now in the second phase of our business improvements simplification integration. You’ve heard a lot of what we've done and what we're doing in that area.
Slide 21 provides an overview of our 2018 simplification integration initiatives. Within each of our segments, we have key strategies that are well underway. I'll just amplify a few of the comments that you heard earlier within our Truckload & Express Services segment. In the second quarter and year-to-date, we experienced negative EBITDA contribution from both temperature controlled and our largest dry van fleet. Additionally, our intermodal services business was profitable, but missed our EBITDA targets. So we have some work to do in this segment to improve and optimize it over the long run.
As Mike and Terry detailed in Q2, we completed the downsizing in restructuring of temperature controlled. We also were able to increase contract rates and that allowed us to achieve improved operating results in June and we expect those to continue in the second half. We are currently making structural changes to improve the operating results in dry van and intermodal services, including onboarding new customers, adding trucks and drivers, increasing contract rates, and adjusting driver and IC compensation and retention programs.
As you heard earlier on the call, Ascent Global Logistics is performing well. Investments in people and IT coupled with the ongoing integration work within this segment are expected to continue to fuel profitable growth and improve productivity in future periods. Earlier Mike Gettle provided you with an update on investments and positive operating trends in our LTL segment.
I want to highlight our LTL management teams’ effort to enhance our freight profile, increase the density within our key lanes, and improve our operating metrics. We are doing these things so that we can continue – why we are investing in the business, so that ultimately we can move out of the red and back into the black. We are also making progress on updating our fleets including transitioning from operating leases to capital leases, so we have better control over the equipment lifecycle.
Teary Rogers mentioned that we've recently received approvals from a number of equipment lenders and captive OEM financers so that we do have the ability now to upgrade our fleets over the next 12 to 18 months. So we are excited about that that will not only benefit us from an operating and service point of view, but it will also reduce our maintenance costs going forward.
Although we continue to face very difficult industry-wide trends related to driver recruiting and retention. By upgrading our fleets and coupling that with adjustments in our compensation and retention programs, we expect to improve our trends in these areas on a go forward basis. We continue to invest in IT enhancements and new capabilities across all three segments. We are also working to improve our internal controls and corporate functions to support our growth in 2018 and beyond. Lastly, on our key financial goals. We have increased the focus on ROIC and on improvements in operating margins.
Finishing up on slide 22, which provides a good summary of today's discussion and the positive trends that support our outlook. We expect that the benefits from the first half integrations and the investments that we are making will begin to contribute to our results beginning in the second half of 2018 with larger benefits from the full-year impact in 2019. These efforts are expected to drive the expansion of operating margins in future periods.
Our longer term goal is to achieve EBITDA of over $100 million by the end of 2020. To help us achieve this goal, we are working with Barclays to identify the optimal capital structure to support our long-term business plans. However, it's too early in the process to provide any specific direction from this engagement and the special board committee continues to consider all alternatives.
With that, we will conclude our remarks. And we will turn the call over for questions. Sarah, are you there?
Thank you. [Operator Instructions] Our first question comes from the line of Bruce Chan with Stifel. Your line is now open.
Yes, good morning gents. It's good to have you consistently back in the fold here. I’ve got a bunch of questions. So I think maybe I'll just take them one by one. But starting generally I guess with your $100 million EBITDA target for 2020. What assumptions are going into that number and how much of that target is dependent on the market kind of remaining where it is today versus the percentage that's attributable to the internal improvements?
Well, that’s a great question, but it's hard to kind of do that justice on a conference call. But what I can tell you is we spend a lot of time building out a multi-year financial model. And we have not – we have assumed that the market – the current market conditions, especially in truckload are not regressed to more normalized rate levels. So we have not assumed that the current market will continue forever.
And so we have built in there, other ways that we're going to accomplish our goals again through productivity, through in some cases increased capacity. And obviously we haven't optimized the current business that we have. So we're not banking on the market continuing like this forever.
Okay, great. That's fair enough and I'll try to take it down to some questions that don't involve the crystal ball so much. But looking I guess at LTL, you've talked about scaling back the service area and I know you discussed that most of that involves tightening around maybe [P&D] stem a little bit. But are there any terminal closures that are associated with that footprint reduction? How many of the current issues are kind of related to the legacy freight business versus the EFS?
So I’ll let Mike Gettle responded to that one.
Great, Bruce there are no planned closures. We haven't closed any of our own terminals nor do we plan to close any of our terminals. We did in Q1 end two relationships with our partners in areas where we were scaling back operation. So we don't work with those terminals any longer.
But really this is around building density in our Tier 1 lanes, which are major metro areas where we have 19 terminals, about 90% of our freight touches one of those terminals. And we continue to aggressively kind of harmonize our procedures and focus on delivering a great freight experience in those – in particular in those lines.
Great, and then just continuing with that kind of line of thinking as far as the freight experience, you mentioned that revenue per 100 weight was up and I think ex-fuel the number was 3.7%, which is certainly good, but maybe also seeing some of the benefits from changing freight mix. When are we at the point where the surface starts to inflect and we can really maybe start to see core pricing move up. Is that kind of 2018 event? Is that 2019 event?
That’s a great question. And we are seeing some of that already in terms of our weight per shipment and our revenue per shipment increasing. It's not quite as strongly reflected in yield, but we are moving a lot of what I'll call, less desirable and less profitable freight out of the system. Our goal in the near-term is not to have strong topline revenue growth but really to cycle out some of the less desirable freight and to bring in new freight to replace that. And we're having good success at that and we think that that will build as time goes on. But it's not about topline revenue growth and the yield is you know also impacted by our length of haul and weight per shipment. So in and of itself it’s not a perfect measure.
Okay. Great and then sticking with LTL, I’m wondering if you can provide the breakdown of your current mix of owner operators versus outside brokered power. And what is it been historically or maybe rather what is your target there?
So right now Bruce we have about – this changes week-to-week, but generally about 48% of our powers, IC and employee drivers, about 36% is purchase providers and 16% rail. We’ve been as high I believe over the long run it's the low 60%'s in terms of IC and employee drivers and I think that's a range we'd like to get back to.
Okay. Great and I imagine that's going to happen through those driver [paying] [ph] recruitment initiatives. So with those pay increases what's sort of the cadence or timing as we move through the year and is it going to be consistent and I guess how should we think about that terms of margin effect I guess you've got the higher labor costs obviously but potential lower purchase trends, is that going to be a net benefit or a net drag to the operating ratio?
Bruce, let me just jump in here real quick just - when it comes to driver recruitment, don't discount the new equipment that will be – and the upgraded equipment that will be putting into the network both for company drivers and independent contractors that's also the key recruiting and retention tool. And this applies not only of course to LTL but to many of our other businesses especially on the Truckload & Express Services side that also run a obviously a combination of the company drivers and independent contractors.
That’s great point. Curt, that's exactly what I was going to underscore it's not so much - the limiting factor hasn't been kind of wage constraint or turnover, the constraining factor has been equipment. And so that's why that's really good news the financing we've been able to secure in that area. There is still nice savings, very nice savings for us to move some purchase power to ICs or employee drivers even with the wage environment the way it is.
Okay. That's very helpful. And then you know maybe just two more quick ones here before I hand it over. Looking at a sense prime distribution seems to be doing very nicely. Wondering if you can give us some color on what the customer makeup looks like there? I know you talked about Walmart as being a big part of that business. I guess how big are they in the context of the overall mix and is that kind of the target level going forward? Are you trying to reduce the Walmart concentration? Is that sort of at a sustainable level?
Yes. Bruce, let me jump in on that and then Mike can add anything in addition. As it relates to prime, it's a very high quality, unique, and well positioned offering of consolidating, basically taking what would be an LTL shipment into a retailer’s distribution facility and converting that into a truckload by really grouping together a number of small customers. So it requires a lot of effort and a lot of coordination. And it's not something that's easy to replicate. And we believe we have the best.
We have a few competitors in the space and we believe we have the best operating model, the best mousetrap on how to do that. So we certainly are looking to diversify into some other opportunities; the retailers in order for this to work have to order in a disciplined and pooled manner and Walmart is the best at it. So that tends to be the majority of the business right now. But we think as other retailers both online and brick and mortar are working to reduce costs that it's a great opportunity for more and more of this retail consolidation.
So we think it's a great space. And the other great news with our existing footprint is we have capacity to continue to expand with our current footprint. So it’s really a unique offering, well positioned, the management team there has done a great job of implementing new technologies and have plans to continue to do that. So we can be happy with that business and we think it's very well positioned.
Okay. That's very helpful. So I guess is Walmart over 10%, under 10% how do they look like there in terms of the pie?
Yes. There are large percentage of the current business, but again Walmart is – they're the destination, our customers are very diverse. So you know we have – no I don't know exactly how many, but their products may end up in Wal-Mart, but our customers actually the people that are producing the product and we're working for them. Now obviously we're doing it with Walmart's blessing and that's a great thing. But if anything we've diversified our customer base and we focused on smaller rather than larger customers because we think they're stickier and will stay with us longer. So I don't worry too much about the concentration there because again, all retailers are looking to optimize their supply chains and this is a great way to do it.
Got it. And then just the last question here on Ascent, but maybe moving over to the solar in a freight boarding side of the business. You talked about the projects business as being the primary corporate or headwind here. But are there any others as far as challenges that you're seeing in that business, is there kind of some topline pressure or maybe capacity costs or pricing competitiveness that you want to call out?
Mike you want to take that.
Sure. I think Bruce, right now I’d say the topline experience is more defined by the uncertainness around the tariff environment. So if we take a couple categories, if we take meat and particularly pork, we're seeing the less export activity to China. And if we look at the import side, we're seeing less steel import. And I think those changes in tariff environment and the uncertainty around the tariff environment that's being disruptive to our revenue stream not so much competitor pricing activity.
Okay, perfect. Great. Well I'll turn it over then and let somebody else ask some questions. I appreciate the time gentlemen.
Bruce, I appreciate your questions. I appreciate your focus on a sense because I don't think there's been enough focus on our Ascent business and we're proud of what we're doing there and we're going to continue to invest and make it even better. So thank you.
Thank you. [Operator Instructions] Our next question comes from the line of Andrew Morovati. He is a Private Investor. Your line is now open.
Hey, guys. I had a quick question just I guess on kind of run rate EBITDA forecast. I know kind of there was some – I guess one-time IT cost think that it burdened the $7 million number this quarter. So just curious I guess how you guys are thinking about EBITDA from a run rate perspective kind of exiting Q3 and then into Q4?
Andrew, this is Curt. That's a really good question. And one thing I'll point out is that last year 2017, there was just a lot of things going on. We were going through the – we were in the middle the restatement. We were going through a complete refinancing of the capital structure. And we also changed out the entire executive management team, so tremendous amount of moving parts there.
And for whatever reason we had a particularly poor third quarter and a pretty mediocre fourth quarter last year. So when you look at our trailing 12-month EBITDA, it's still pretty weak. We would expect that to continue as we roll through the rest of 2018.
In terms of the IT costs, I think right now you should think about those as ongoing because we are in some cases we're planning catch up. In some cases we’re planning leapfrog with IT spend. So we're going to – we're committed to continue make those investments because again in my opinion if we don't have a strong IT or if anybody in the transportation and logistics space doesn't have strong IT then I can be around in five or 10 years. I feel very strongly about that.
So we’re plan a little catch up in certain areas and other cases we’re ahead and we're going to stay ahead for competition. So I don't think those as temporal. I think of those as permanent and that we will get a return on investment from those IT investments. Is that help?
Yes, got it. And I guess just from a breakeven perspective on the LTL segment. You guys have a sense for when you get there?
I can guarantee we’ll get there. We're going to do it without sacrificing the investments that we want to make to build the right model and to have the right service offering for our customers. I think we could be there by the end of this year or we might get that point sometime in 2019. But we're definitely trending in the right direction and we want to continue to obviously deliver positive results and profitable operations. But we don't want to do that at the expense of building the business back the right way in a sustainable manner.
Got it. Thank you.
End of Q&A
Thank you. We have no further questions at this time. I would now like to turn the call back to Curt Stoelting for any further remarks.
Okay. Thanks, Sarah. And thanks for all of you who joined today. We look forward to providing additional updates in the future. Take care.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.