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Greetings and welcome to the Roadrunner Transportation Systems 2019 Second Quarter Financial Results Conference Call. Today's call is being recorded.
At this time, I would turn the call over to CEO, Curt Stoelting. Please go ahead, sir.
Thank you. Good morning and welcome to today's conference call. Joining me are Mike Gettle, our President and Chief Operating Officer; and Terry Rogers, our Executive Vice President and Chief Financial Officer. Also joining is Chelsea Mitchell, our Director of Marketing and Corporate Communications.
To begin, Chelsea will cover our Safe Harbor statement.
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 our reported results can be found in our press release, which we have posted to our website at rrts.com. Additionally, the slides accompanying today's presentation can be accessed in the events and presentations tab in the Investor Relations section of our website at rrts.com.
Thanks, Chelsea. Before we cover today's materials, I'd like to start by personally thanking our management team, team members, pilots, drivers, independent contractors, customers, vendors, lenders, and other business partners for their ongoing trust and support. Today on the call we'll cover the following topics I'll provide some opening comments. Terry Rogers will provide a summary of our consolidated results for the 2019 second quarter and first half. Mike Gettle will cover due to business trends in each of our four segments and I'll provide an update on business improvements and strategic focus and then we'll wrap up with the Q&A session.
Moving on to our opening comments, our revenue and adjusted EBITDA declined in the second quarter of 2019 primarily due to low demand in air and ground expedited logistics at Active On-Demand as market conditions deteriorated from the prior year and from Q1 of this year. Active On-Demand revenue was down 63.3 million in the second quarter versus prior year, with declines across all service offerings, including our air fleet, our air brokerage and our ground expedite. This resulted in a decline in adjusted EBITDA of 10.3 million. So we have seen volatility in the segment in the past and these variations do not impact Active's ability to capture improved revenue and profit as expedite demand improves in the future.
Ascent Global Logistics earned lower revenue and marginally lower adjusted EBITDA in the second quarter due to declines in truckload volumes and rate mix, which were offset by revenue improvements in our international freight forwarding and retail consolidation service offerings. Ascent international had double digit top and bottom line growth in the second quarter. Our asset-light LTL business continues to improve freight quality and operating metrics despite a slight decline in second quarter revenue and adjusted EBITDA. It's important to note that our second quarter LTL revenue, excluding backhaul and fuel surcharge revenue increased by 3.4% versus the prior year. We continue to invest and improve our LTL offering.
Truckload segment adjusted EBITDA declined due to the lower revenue and higher costs at certain operating units. The improvement in temperature-controlled and flatbed was offset by declines in dry van which had higher costs and intermodal services which experienced reduced volumes in Q2 compared to the prior year due to soft market conditions. Moving forward, we are narrowing our strategic focus to our logistics and asset-light LTL segments, more on that topic later in the presentation.
Despite lower operating performance in Q2, we continue to have available liquidity from our asset based lending facility. As we stated on prior calls, we do not expect and are not achieving a linear turnaround process. Although some of our businesses can experience short-term volatility primarily due to market conditions. Our overarching focus to achieve better than average industry margins and sustainable returns on invested capital in our core segments. We are encouraged by our team's progress across all segments.
I'll turn the call over to Terry Rogers, our EVP and CFO.
Thank you, Curt and good morning. I'll review our performance for the second quarter and first half of 2019. Mike will be providing detail on the operating trends of each of our segments in a few minutes. So I will cover the results at a consolidated level.
Before I start, I want to point out that we have changed our segment reporting by expanding three segments to four. The segments are, Ascent Global Logistics, Active On-Demand, Less Than Truckload or LTL and Truckload or TL. The change established a separate segment for Active On-Demand which was previously grouped with the truckload segment operations.
Slide 7 summarizes our second quarter financial performance. Challenging market conditions resulted in second quarter 2019 revenues of 480.7 million, a decline of 13.9% from revenues of 558 million in the second quarter of 2018. Year-over-year, revenue declined in all four segments, but the largest contributor was the low demand in air and ground expedite for the Active On-Demand segment.
The second quarter 2019 operating loss was 137.8 million, compared to a loss of 11.4 million in the second quarter of 2018. The second quarter of 2019 was materially impacted by 403 million [ph] of non-cash impairment charges. First, in connection with the previously mentioned changes in segments, the company completed an impairment analysis as of April 1, 2019 for the Truckload and Express Segment or TES. The TES operations had not met forecasted results and was determined carrying – seen as a [ph] to fair value, requiring a goodwill impairment charge of 97.9 million [ph], this represents a [ph] right off of all the goodwill of the TES segment.
Thus, the new Active On-Demand and the remaining truckload segment have no goodwill balances as at the end of the second quarter of 2019. Additionally we recorded an asset impairment charge of 13 million related to internally used software that was banned in favor of our [indiscernible] customized product solutions. Also declining operating performance in one of the truckload businesses resulted in the termination at other intangibles of 1.9 million related to that business were impaired.
And lastly, impairment charges of 0.5 million were recorded for assets held for sale in our truckloads segment. Excluding the impairment impact operating results decreased in three of the four segments compared to the second quarter of 2018. This includes a decrease in operating results at Active On-Demand of over 10 million compared to the second quarter of 2018.
The net loss in the second quarter of 2019 was 141.9 million, compared to a loss of 42 million in the second quarter of 2018. In addition to the items previously discussed, there was a significant reduction in year-over-year interest expense to 4.6 million in the second quarter of 2019 versus 34.2 million in Q2 2018. This is largely a result of substantially lower debt in the second quarter of 2019 following the redemption of preferred stock, which was classified as debt under GAAP in the first quarter of 2019.
Effective tax rates are relatively low compared to the statutory rate for both the second quarter of 2019 and 2018. However, the primary driver of that was different for each period. The income tax benefit for Q2 2019 was offset by corresponding increase in the valuation allowance for deferred tax assets. While in the second quarter of 2018, the largest driver was the non-tax deductible interest expense associated with the company's preferred stock. For the balance of 2019, we expect any tax benefit to be offset by increases in the valuation allowance for deferred tax assets. Please see the income tax footnote in the 10-Q for more detail.
The diluted loss per share in the second quarter of '19 was $3.77 versus $27.24 per share in the second quarter of 2018. The calculation is based on the weighted average number of shares outstanding during the period. It is important to note that as a result of the 1.25 [ph] reverse stock split on April 5, 2019 references to the number of shares in common share data for all reported [indiscernible] and investor actively adjusted to account for the effect of the reverse stock split. Per share calculation for the second quarter of 2019 reflects the issuance of 36 million shares of common stock in the rights offering completed in February 2019. Second quarter adjusted EBITDA decreased by 13.3 million year-over-year. We'll touch on that more in a bit.
On Slide eight. Turning briefly to this slide, you can see the revenue comparison for the second quarter of 2019 versus the second quarter of 2018. LTLs revenue decreased slightly, although was essentially flat. There were decreases in other segments with the largest decline in the Active On-Demand segment.
Turning to Slide 9 which reconciles the net loss to adjust EBITDA from the second quarter of 2019 and 2018 for each of the four reporting segments in the company. For the segments, only Ascent posted positive adjusted EBITDA in the second quarter of 2019. And Q2 year-over-year adjusted EBITDA was down in all four segments. The largest contributor was the performance at Active On-Demand with a 10.3 million reduction in adjusted EBITDA versus the second quarter 2018 that represents over 70% of the year-over-year decline. Mike will cover the drivers by segments shortly.
Turning the slide 11 and the first half results, revenues decreased to 987.8 million from 1.128 billion in the first half of 2018. Like the second quarter of the year-over-year decline was driven by low demand in the air and ground expedite for the Active On-Demand segment. The Active On-Demand revenue declines of 115.3 million represent over 80% of the total year-over-year decline from the first half of 2019.
The net operating loss of 158.6 million in the first half of 2019 compared to the 24.8 million operating loss in the first half of 2018 was impacted by the by 109 million of impairments in the first half. I discussed the second quarter 2019 impairments of 108.3 million previously. Additionally, the first quarter of 2019 also had a 0.8 million impairment from abandoned internally used software, bringing the first half of 2019 total to 109.1 million. Excluding impairment charges the higher operating loss in the first half of 2019 [indiscernible] was again driven by large year-over-year declines at Active On-Demand, as well as declining performance and truckload and Ascent partially offset by improving the result at LTL.
The net loss of 168.8 million [indiscernible] and was higher than the loss of 65.6 million in the first half of 2019, largely due to the operating performance and impairment charges already discussed. Additionally, the first half of 2019 included a debt restructuring charges of 2.3 million.
Interest expense in the first half of 2019 was 35.3 million lower than the first half of 2018 due to the redemption of the high cost preferred stock in February 2019. And also that interest on that preferred stock in January and February of '19 was waived upon completion of the rights offering.
The effective income tax rate was low in both first half of 2019 and 2018. For the same reasons I cited for the second quarter tax rates. Similarly, as I discussed for the quarter, the one 1-for-25 reverse stock split on April 5, 2019 has been retroactively adjusted to account for all reporting periods. The higher weighted average number of shares on the first half of 2019 resulted in the lower first half loss per share of $6.39 versus $42.62 per share for the first half of 2018. The 36 million shares issued during the rights offering in February 2019 is reflected in the calculation. Adjusted EBITDA for the first half of 2019 decreased to a loss of 5.8 million versus 9.9 million of adjusted EBITDA income in the first half of 2018.
Turning the Slide 12, first half revenue declined for all four segments year-over-year and again, Mike will touch on some of this in his section. So moving on to Slide 13, which is my final operating slide, adjusted EBITDA which compares adjusted EBITDA for the first half of 2019, versus the first half of 2018. The declining year-over-year performance at Active On-Demand stands out along with moderate declines at Ascent and truckload businesses. On a positive note the actions that LTL showed improved adjusted EBITDA over the first half of 2018.
Finally, Slide 14 reflects the substantial reduction in total debt in 2019. The $450 million rights offering and the new bank ABL and term loan closed during the week of February 2019. The proceeds from these transactions allowed us to fully redeem the preferred stock, which was our highest yielding obligation, as well as pay off our prior ABL facility and approve liquidity for operating purposes.
Our finance lease liability increased by 42.9 million year-to-date, as we continue to upgrade our fleet with financing primarily provided by the capital finance companies of OEM manufacturers. We expect this investment will positively impact fleet rent expense and repairs and maintenance moving forward. The net result is a $350 million reduction on our total debt in preferred stock since the beginning of the year.
Now let me turn the call over to Mike Gettle, our President and Chief Operating Officer will discuss the trends in our business.
Thanks, Terry. Good morning, everyone. I'm pleased to be able to share some additional commentary regarding our operations in each of our segments starting with Ascent Global Logistics on chart 16.
Our Ascent revenue in Q2 was 130 million and decreased by 10%. And our adjusted EBITDA was 7.5 million which was11.6% lower than 2018 Q2. Our strategy in Ascent is based on improved integration which enables easier access to more of our brokerage capabilities by more of our customers. As part of this integration, we're making investments to consolidate our IT capabilities onto one proprietary enterprise brokerage platform for both our Ascent and Active On-Demand segments.
Revenue was down 18.8% in our domestic freight management business because of lower brokerage load counts and rates and from the planned reduction in the fleet used to back up by brokerage in certain tight lanes. These revenue declines were partially offset by improved brokerage margins and by reduced operating costs. However, the Ascent segment EBITDA reduction was primarily driven by domestic freight management.
International freight forwarding continued its strong growth with revenue increasing 10.9% in Q2 from expanded volumes in current and new customers as a result of sales force, investment and continuing high levels of customer service. Our retail consolidation revenue grew 2.4% primarily from new and existing customer volumes because of continuing improvements in our on-time in full performance.
Turning to Active On-Demand on chart 17, our revenue in Q2 was 101.5 million and decreased by 38% from 2018 Q2. Our Q2 adjusted EBITDA was a loss of 0.5 million and was approximately 10.3 lower than the profit a year ago. Our strategy at Active On-Demand is to provide premium, mission critical air and ground expedite services. We're working to drive operational improvements and further execution of World Class client solutions, including the ability to quickly both shift and to leverage IT scale with other Ascent Global Logistics brokerage systems.
The market demand in Q2 for expedited air declined significantly resulting in lower trip volumes and rates in our air fleet and brokerage. This resulted in 50% less revenue than a year ago and was the primary driver of the reduced segment adjusted EBITDA in Q2. And together with the lower fleet availability and capture rate in Q1 was the primary driver of first half adjusted EBITDA performance.
Ground revenue declined by 31% in Q2 from lower market demand, which continues to decline from peak levels in 2018. While this contributed strongly to the revenue performance of the segment, it had a more modest impact on adjusted EBITDA. Active On-Demand's short-term volatility historically moderates over longer periods. Our business capabilities remain intact to capture revenue and adjusted EBITDA as demand improves.
Turning the LTL on chart 18, our revenue in Q2 was 117 million and declined 0.1% from the prior year. Our Q2 adjusted EBITDA was a loss of 3.4 million which was approximately 18% higher than a year ago and was 1.8 million or 35% lower than our loss in Q1. Our LTL strategy is to focus on our core competency as a metro-to-metro LTL provider with expansive long haul regional next day offerings.
This includes three main elements; using sales discipline to drive volume in the strategic lanes and leveraging our regional capabilities within EFS, using pricing intelligence and network enhancements to improve yield and market share in strategic lanes and driving shipment reliability and visibility through investments in technology, centralization of our teams and process harmonization across the network.
Excluding backhaul and fuel surcharge revenue, our revenue grew by 3.4%, which was driven by an increase in revenue per shipment, excluding fuel of 4.4% offset by a decline in shipments per day of 1%. The percentage decline in shipments per day improved from recent quarters as we are now lapping periods after late Q1 of 2018 when our most significant efforts began reducing our pickup and delivery footprint, reducing in profitable freight, improving our freight profile and building density in strategic lanes. The Q2 increase in revenue per 100 weight excluding fuel a 3.8% ended weight per shipment of 0.6%, reflect our ongoing focus on improving our freight profile.
From a cost perspective, our focus on yield, reducing service areas and improving our freight profile is improving our pickup and delivery costs. The increase in operating cost in the quarter was predominantly driven by an increase in equipment repair and maintenance costs, as well as personnel related costs as we've reduced deferred maintenance and build a stronger foundation for future growth.
Our truckload revenue in Q2 was 141.5 million and declined by 2.9% over 2018 Q2. Our adjusted EBITDA was a loss of 1.1 million and declined by approximately 1.4 million from a modest profit in 2018 Q2. Our truckload strategy is centered around integrations and improvement of scale and right size our capacity to address both scheduled and unscheduled freight needs.
Our over the road capabilities include dry van, temperature controlled and flatbed fleets, which comprise 68%, 20% and 12% respectively of year-to-date 2019 revenue. Dry van revenue increased in cube in Q2, but that was outpaced by increases in cost. Our temperature controlled revenue in Q2 declined primarily from fleet size from prior period, but resulted in improved profitability in Q2 and year-to-date 2019. Our Q2 intermodal revenue declined by 7.6% driven by decline in load counts for market softness, partially offset by improved rates per load which together resulted in lower profitability.
That concludes our comments on our operating segments and I'll turn the presentation back over to Curt.
Thanks, Terry and Mike. Next, I'll provide an update on our business improvement plans and our strategic focus. On Slide 21, we are tracking our business improvement in five key phases. We are currently in the second phase of business improvement, simplification and integration. Having completed the capital structural improvements in Q1, we are now sharpening our strategic focus.
On slide 22, we summarize the key initiatives that are in place in each of our segments. It's important to remember that we continue to invest in the integration of Ascent, which we expect will benefit future top and bottom line results. We also recently launched development of a proprietary enterprise brokerage platform called peak platform, which will support our logistics operations and Ascent and Active On-Demand and streamline our logistics go-to-market capabilities.
Concluding on Slide 23, we want to summarize our key financial focus areas. Based on our increased focus on our logistics and asset-light LTL segments, we are undertaking a strategic assessment of our truckload assets. Through June 30, we invested over $15 million to update our fleets across all four segments. Because of the timing of the equipment delivery schedules and transition costs, we have not yet seen the full benefits from these investments.
Expected benefits include improved safety and fuel efficiency, reduced repair and maintenance and operating lease costs and improved service levels and productivity. Over time, we expect to reduce the amount of required fleet investments. By narrowing our strategic focus, we expect to more quickly improve cash flow and debt reduction, remediate internal control deficiencies and move operating margins and return on invested capital closer to or better than industry norms.
That concludes our remarks and we'll now turn the call over to Tia for the Q&A session.
[Operator Instructions] The first question will come from Bruce Chen with Stifel. Please go ahead.
Yes, thank you, operator. Good morning, gents. Terry, I guess this is probably going to be your last earnings call. So just want to give a quick thanks for all your help and all your work over the past few years. And maybe that's a good transition into a question about how the search for a replacement is going. I know that it was a fairly recent announcement. But any progress to speak out there?
Bruce, this is Curt. Thanks for being on the call today. Yes, we are in the search process. It's still early on, but we're encouraged with the quality of the candidates that we're getting exposure to. And when we make a decision, we'll let you know which direction we're going in the future.
Okay, great. And then just switching gears a little bit, Curt and Mike, you talked about some elevated costs during the quarter. And I was just hoping to get a little bit more color. Your personnel costs were up in many of the segments, which I think kind of seems a little strange, given the top line declines. But can you talk about what's driving that increase there?
Bruce, I think in terms of personnel costs, they were up across most of the segments; probably the one that may find more interesting is in LTL. We've increased our maintenance team, our safety team; we're putting in place foundation for future growth. We also had in LTL, as result of increased maintenance team catching up on some of our deferred maintenance. And so our maintenance costs were up across the quarter. Our logistics businesses are talent driven businesses. And so we're being proactive I think in investing in talent in most businesses.
Okay, that's helpful. And in terms of headcount overall, where do you stand now versus a year ago levels?
I think we're pretty close overall, Bruce. I think what you're seeing in the numbers is probably just normal wage inflation, there's obviously driver inflation this year versus last year as many of the driver pay increases took effect throughout the year in '18 and we get the full effect in '19.
Okay, that's helpful. And then on the OpEx side. Mike, I know you talked about the equipment piece, which is very helpful. Is there anything else that's going on in other parts of the business? Is there anything in there related to claims expense maybe?
I don't have at hand our claims expense data, doesn't stand out for me. I think the primary issue is around our maintenance cost and the timing of getting benefit from the fleet investments and to reduce our maintenance costs going forward, which we think will be an opportunity.
Okay, alright. And then on the Active On-Demand side, obviously, really tough environment for that business. And there were other companies out there, they reported similar results, but just digging in on what that trajectory might be. I know, Curt, you said that it ebbs and flows, but it seems like a lot of the weaknesses might be related to this automotive and industrial softness that we've been seeing. And I'm wondering what needs to happen in order for these volumes in this environment to inflect. Do we just have to wait for automotive and industrial end markets to improve? Or is there something else that maybe you guys can do to help smooth these results out?
This is an interesting question the Active On-Demand business is really driven more by supply chain disruptions and I think global economics stand. Last year was a record year because we had a very tight truckload freight market. And we had a number of different events year before we had especially in the third and fourth quarter, we had the impacts of hurricanes and those things are hard to predict. But they do tend to happen, even though they're not predictable and we don't see him coming. And what encourages us is that Active, if you look at their history they go through these ebbs and stuff, peaks and valleys in cycles. But the business remains very well positioned to earn increased revenue and profit as demand and expedite either on the air or in the ground or on the ground improves. So it's hard to predict. We've said that all along, but it's very well positioned business and things – stuff seems to always happen that moderated over a longer period of time.
Sure, well, there's certainly no shortage of stuff happening now. And I guess you guys saw a pretty strong demand in Active On-Demand. Last quarter, I imagine some of that may have been related to some of the inventory pre-stocking and then maybe you experienced some of the air pocket after May. We've recently had an announcement that we might be getting another round of tariffs. So I thought I'd ask if you've seen any indication of that in your Active On-Demand business or in any other parts of the business where maybe there's some restocking going on to shore up inventories that might have gotten depleted over the last few months.
Yeah, I think it's really hard to say. There's certainly been impacts from the tariffs, but because they affect different companies in very different ways and their supply chains in very different ways, it's really hard to make a generalized statement. We're encouraged that our international freight forwarding business within Ascent has done tremendously well throughout the first half of the year, both the top and bottom line; whereas I think many of the larger players in that market have had some disruption because of tariffs and other changes in supply chains. I think we've been able to overcome that because we've added new customers and we've increased our business with existing customers. So it's very hard, I think to take something like tariffs which are very complex and affect different companies in different ways and know exactly how it affects the different parts of Roadrunner.
Okay, so I guess no, no real signs of any inventory built at this point?
I think that's fair to say. Yeah, and I don't I don't know that tariffs is going to have a big impact on Active On-Demand because most of the supply chain that they support are running more of a just in time model and probably not going to build extra inventory. And again, it's more based on supply chain disruption is what's going to drive more expedite demand.
Okay, alright. And then looking at the truckload segments, interesting to hear about the strategic assessments, are you actively shopping that in the market now or you're still considering shopping that in the market?
Well, we're in different phases with different parts of the business. Overall, we're still on an assessment phase, we haven't made any decisions, but we are considering all viable alternatives.
Okay and what drove that decision to divest now or to potentially divest now, was it just that the turnaround wasn't going the way that you wanted to? Or that you needed to put more focus on other parts of the business? It just seems like now, when – and maybe we seen some softening in some of the transaction multiples now. I'm wondering what, what kind of sparked that decision?
Well, I think we've always said that we were going to look at our longer term portfolio. Our goal was to recapitalize the business, which we were able to complete that in the first quarter. We had some delays around that because of the government shutdown early in the year. And that really got us to the point where we had the time and the energy to put into this kind of the strategic assessment of the entire portfolio. And so our timing maybe a little off, but I think this is all part of the plan that we laid out a few years ago.
Okay, that's fair. Are you guys still going to be pursuing the turnaround in dry van while you're making your strategic assessment?
Absolutely, I think the team there's working hard, we've completed more of the integration, there's still more work to do to turn that business around, but we're under 150%, working to improve that business.
Okay. Then on the LTL side, I think also had a fairly encouraging result there, especially given what's going on in the market. Are you guys still on target for breakeven EBITDA there this year?
Bruce that is the goal that we're working to, I think as you kind of alluded to in your comment there, the overall market for LTL is softening. And that's clearly a headwind and the depth and kind of persistence of that is going to have an impact on our ability to achieve that. So I think it's maybe a little more in question than it was three and six months ago, but still what we're working to try to achieve.
And I'd say overall, we continue to make good structural improvements on the things that we can control. But ultimately, we do need – we need higher levels of revenue in the network, obviously, in the right lanes with the right freight. And that's what the team is working on every day.
Okay and then just because I've always been curious, can you provide anything color on the margin differential between EFS and the legacy LTL business? Is there anything appreciable there? Do they run roughly the same in terms of OR?
I'm sorry there was a difference between the Roadrunner freight offering and the EFS offering?
Yes.
That's something that we don't obviously publish and I don't I don't have that right in front of me. I think they probably are different because they're different operating models with EFS really focusing on more of a regional expedited offering, whereas as you know the Roadrunner freight model is long haul metro-to-metro and priced a little differently. So I would guess if you dug into that a little deeper that you would find some differences, but the vast majority of our LTL business is tied around Roadrunner freight.
Okay. And EFS is pretty much running smoothly and doesn't need a whole lot of time and investment or are both segments undergoing the turnaround investment.
Yes, it's been a stable business for us. There's always some puts and takes on the customer side that affect both the top and the bottom line results, but we're on the upswing there. And we've tied the two management teams closer together. And I think that's also providing some good synergies and some things that they can work together on, even though they're operating in different business models.
Okay, and then just because I have to ask and kind of follow up on Mike's point about LTL margins and you guys have laid out that $100 million benchmark for 2020 EBITDA. And I just want to get your take on how achievable that is now, given what's been going on in the larger macro environment? Is that still something that's possible? Is that likely moved out a little bit further and what's your view there?
Well, Bruce as we said in the release at this point in time, we aren't in a position to give short or long-term guidance. We certainly believe we can get to that number. I think at this point, I would say it's likely going to take longer than we hoped, but it's still a longer term goal that we have, but not guidance.
Okay, alright. It's very fair. Well, appreciate the time as always and look forward to speaking again soon.
And, Bruce, I do appreciate you being on the call. I think also, normally, we wouldn't let you ask 10 questions, but because you're the only analyst we're going to always extend you that liberty.
Excellent, appreciate that.
Thanks for sticking with us.
The next question is from Boris Senderzon with Hilbar Capital. Please go ahead.
Yeah. Good morning, gentlemen. I have a couple of family if I may. First question on the strategic review, I want to ask you why you engage in it now as opposed to a year ago when you had Barclays looking at the entire company. And, arguably the truckload business was in a better shape?
Yeah, Boris, that's a good question. And I probably should have pointed that out in my earlier response to Bruce Chan's question. But, yes, when Berkeley's did look at the strategic alternatives to the company, we did look at different scenarios of selling off segments or parts of the business. And it was pretty clear from the analysis they did and the recommendations that they gave that that wouldn't have solved the capital problem, but there wouldn't have been enough cash generated to redeem the preferred stock at that point in time. And so obviously, we went a different direction.
Okay, and could you also comment on the standby financing from Elliott?
Well, that agreement – last year – my recollection is in '16 and '17 – I'm sorry, in '17 and '18, we had a standby agreement from Elliott. I can tell you now is Elliot, as a large majority owner in the business continues to be a very good partner with the management team in terms of aligning with the strategy and providing the capital that we need to continue the recovery effort.
Okay, if I may one final question on the software development impairment. Is this the legacy software that you're basically replicating or is it something you've been working recently on and decided to go a different direction?
Yeah, that's, that's a great question. Backdrop to this is we've identified some pretty significant overlaps in the functionality requirements and customer needs in domestic freight brokerage and in our expedited air and ground business. And we made the decision to create a single platform to support those capabilities and halted separate efforts that were underway in those businesses. And then the second thing that we've done is you have seen we have some very good operating and financial trends in our LTL business. And this has been partially accomplished by us making a very targeted IT investment to improve the business. And our previous plan was to change out our entire transportation management system and move to a package solution. Based on the progress we've made with some of those more targeted efforts. We now believe that continuing the custom development and modernization of our current TMS is a better path. And so those are really the two drivers.
Yeah and I think – I agree totally with Mike, I think in both cases, we believe we'll have better technology, which is very important for the long-term viability of the businesses, as well as we'll be spending less in the future by taking the impairments now, plus I think, by building the more customized proprietary software, we do differentiate ourselves in the marketplace. So I think when we weighed all the puts and takes that's how we concluded on that.
Alright, thank you so much.
Okay, thank you.
At this time, I would like to turn the conference back over to Curt Stoelting for any closing comments.
Okay, well, thank you for your time today. We look forward to better results in the future and speaking to you on future calls. Thank you.
Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.