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Greetings, and welcome to the Roadrunner Transportation Systems 2018 Third Quarter Financial Results Conference Call. Today's call is being recorded. At this time, I will turn the call over to CEO, Curt Stoelting. Please go ahead, sir.
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. We're also joined by Chelsea Mitchell, our Senior Manager of Corporate Communications. The slides accompanying today's presentation can be accessed on our website in the Events and Presentations tab of the Investor Relations section. Before we get into the detailed presentation, I'd like to ask Chelsea to cover off 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.
Thanks, Chelsea. Just to give you a quick overview on our call today, 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 third quarter and for the 9 months ending September 30, 2018; Mike Gettle will cover business trends for each of our segments; and then I will wrap up by providing an update on our business integration and simplification initiatives and discuss our outlook. At the very end, we'll reserve some time for a Q&A session. Before we go any further, and as I -- as we always do on these calls, I'd like to personally thank our management team, our team members, our pilots, drivers, independent contractors, customers, vendors, lenders and business partners for their ongoing trust and support. We can't move the freight without the team, and we are assembling a very good team here. Happy to be working with all of them.
I'm also happy to announce that we are very close to completing a global settlement of the restatement securities class action and related derivative lawsuits. This settlement will have cash flow impact to the company of less than $2 million, which is a good outcome, and it will resolve a large uncertainty and allow our top management team to focus even more of our attention on our operational versus legal matters. You can get additional disclosures regarding these legal matters in our 10-Q disclosures and other SEC filings. Moving on to business issues. On Slide 5. Just some quick opening comments and some headlines around the quarter and the year-to-date results. We continue to grow our business. We had comparable 2018 revenue growth of almost 7% for the third quarter and almost 14% for the 9 months. We also reported positive operating trends in all 3 segments with adjusted EBITDA improvements versus the prior year third quarter of nearly $1 million in Truckload & Express services, $3 million in LTL, $2.8 million in Ascent Global Logistics and $2.3 million in corporate, resulting in a $9 million total EBITDA improvement quarter-to-quarter. Our Truckload & Express Services segment achieved revenue growth and adjusted EBITDA improvement due to continued strong results in our air and ground expedited business and higher profits from structural improvements in our temperature controlled fleet, partially offset by weak performance in our dry van fleets. We narrowed our losses versus the prior year quarter in our LTL segment, where we had expected lower revenues from service area reductions that we announced in the second quarter, while achieving operating improvements in our -- especially in our operating metrics, which Mike Gettle will walk you through in a little bit, due to our ability to improve both our freight mix and our lane mix and lower our operating costs. As expected, we continued to achieve strong top and bottom line comparable growth in our Ascent Global Logistics segment, driven by growth in both our domestic freight management, 3PL business and our retail consolidation business, where we grew volumes, rates and yields in both of those businesses. Finally, I'd like to say that our planned capital structure simplification and improvement will support our longer-term business plans and increase the speed and likelihood of a full operational recovery, especially as it relates to obtaining cost-efficient financing for required fleet replacement and expansion as we move forward. As we've stated in the past and will continue to point out, during a turnaround process, there are always some bumps along the way. However, we remain committed to long-term and lasting improvement in each of our segments and in our consolidated bottom line results. I'll now turn the call over to Terry Rogers.
Thank you, Curt, and good morning. I will summarize our operating performance for the third quarter and the first 9 months of 2018. I'd like to remind you of the sale of our Unitrans subsidiary on September 15, 2017, as I will be highlighting and frequently excluding the impact of Unitrans operating results and the gain on the sale of Unitrans when commenting on our year-over-year comparisons for the quarter and year-to-date results. Turning to Slide 7, which is the summary of the financial performance for the third quarter. Revenues in the 2018 third quarter, excluding Unitrans, rose 6.9% over 2017, driven by higher revenues for Truckload & Express Services and Ascent and despite declining year-over-year revenues for LTL as that segment focuses on its core of metro-to-metro long-haul. The net operating loss was $10.8 million in the 2018 third quarter versus operating income of $11.3 million in the third quarter of 2017. The 2018 third quarter included $4.7 million of corporate restructuring and restatement costs compared to $6.8 million of corporate restructuring and restatement costs in the 2017 third quarter. 2017 third quarter was also negatively impacted by a $4.4 million goodwill impairment for Ascent, while the 2017 results were positively impacted by the $34.4 million gain on the sale of Unitrans as well as $1.3 million of 2017 third quarter operating income, generated by Unitrans through the September 15 sale date. The net loss of $41.6 million in the third quarter of 2018 compares to a $10.1 million net loss in the third quarter of 2017 due to the items I previously mentioned in the operating results and to substantially higher interest costs of 38 -- $35.8 million in the third quarter of 2018 from $10.5 million in the 2017 third quarter.
The increase in interest expense is driven by higher noncash interest related to the accrual of preferred dividends and changes in the fair market value of the preferred shares, which are recorded as debt. The 2017 third quarter net loss also included $6 million of debt extinguishment from the repayment of preferred stock with proceeds from the Unitrans sale in the ABL, which closed in July 2017. The higher costs were partially offset by an income tax benefit in 2018. Adjusted EBITDA, excluding Unitrans, improved by $9.1 million year-over-year. I will touch on that more in a moment. On Slide 8, which summarizes our segment results for the third quarter of 2018. A reminder that the company changed reporting segments beginning in 2018. 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 3 segments are Truckload & Express Services, or TES, less-than-truckload, or LTL, and Ascent Global Logistics. Our 10-Q, the earnings release and this presentation reflect the new segment structure. Turning first to our TES results. Every quarter this year, including the third quarter, TES increased revenues and adjusted EBITDA from the comparable year-ago period. In the third quarter, revenues were up 7.6% to $280.3 million. Continued strength in our ground and air expedited freight and related brokerage drove higher volumes and rates. TES operating income improved to a loss of $0.8 million from an operating loss of $1.7 million in last year's second quarter, and adjusted EBITDA increased to $5.7 million from $4.7 million as higher revenue drove earnings, offset by increased purchase transportation, equipment lease, maintenance and IT costs. Turning to LTL. Revenues of $113.9 million in the third quarter were lower than the prior year due to lower shipping volumes, partially offset by higher fuel surcharges and rates. While LTL adjusted EBITDA for the quarter was a negative $4.2 million, there was an improvement over the prior year's negative adjusted EBITDA of $7.2 million. The volume decline, as well as the improved adjusted EBITDA, were driven by planned reductions in selected service areas and lower bad debt, cargo claims and lease costs in the same period of 2017. Lastly, the Ascent segment, excluding the impact of Unitrans, posted another strong quarter in both its top and bottom line performance. Adjusting for the Unitrans results in 2017, the third quarter of 2018 generated 15.6% higher revenues and a 48.4% increase in adjusted EBITDA compared to the third quarter of 2017. The performance was driven by sales growth and improved operating margins in retail consolidation and domestic freight management, partially offset by weaker performance in international freight forwarding. Mike will provide more insight on the segments in a few minutes. Slide 9 provides a reconciliation from net loss to adjusted EBITDA for the third quarters of 2018 and 2017, and it shows the impact of excluding Unitrans from the third quarter of 2017.
We've already discussed most of the adjusting items. The bottom line adjusted EBITDA year-over-year comparison on Slide 10, when all the adjustments are reflected and the Unitrans results are excluded, we have showed improved year-over-year performance in total of $9.1 million and in all segments and corporate for the third quarter of 2018 compared to 2017. Next, I will return -- I will turn to the results for the first 9 months of 2018 beginning on Slide 12.
Revenues adjusted for the Unitrans revenue of $67.6 million in 2017 increased 13.8% to $1.66 billion. The net operating loss of $35.6 million in the first 9 months of 2018 was higher than the $14.1 million operating loss for the same period in 2017. However, the 2017 period was positively impacted by the gain on sale of Unitrans of $35.4 million and the $5.8 million of operating income generated by Unitrans in the first 9 months of 2017. A negative income -- impact on that 2017 period was the $4.4 million of goodwill impairment for the Ascent segment. Both periods were negatively impacted by costs related to the corporate restatement process or operating restructurings totaling $20.2 million in 2018 and $23.6 million in 2017. The net loss of $107.2 million in the first nine months of 2018 was higher than the loss of $67.9 million in the same period of 2017, largely attributed to increased interest expense of $79.6 million in 2018 versus $45.4 million in 2017.
The portion of the interest expense related to the preferred shares increased to $71.6 million from $33.7 million. The preferred shares were outstanding for all of 2018 and only from May on in 2017. These amounts in 2018 were all noncash and are nondetectable for tax purposes, and along with lower statutory rates, drove with a lower benefit from taxes in 2018, a $3 million versus $12.3 million in 2017. Adjusted EBITDA for the first 9 months of 2018 was $14.3 million, a meaningful improvement from the $1.5 million ex Unitrans in the first 9 months of 2017, more on that improvement in a couple of slides. The explanation for the truckload -- I'm sorry, turning to Slide 13. The explanation for the Truckload, Express Services performance year-to-date is similar to the discussion for the quarter. TES revenues were up 20.7% and adjusted EBITDA up 39.8% to $906.4 million and $26.5 million, respectively. As we have stated the past few quarters, the performance was driven by increased ground and air expedited freight business, as the strong demand environment drove higher volumes, rates and increased adjusted EBITDA. The strong performance was partially offset by increased purchase transportation cost, equipment lease, maintenance and IT costs. Less-than-truckload revenues of $344.2 million was below the first 9 months of 2017 by about 1% due to decreased shipping volumes and despite higher fuel surcharges and rates. Buying declines are the result of our refocus on our core service areas. The operating loss and adjusted EBITDA for the first 9 months of 2018 for LTL widened to $14.8 million from $11.3 million in the first 9 months of 2017.
Contributing factors are the lower volumes and the higher line-haul rates as tight market continues -- conditions continue for purchase power and higher spot price -- spot prices paid to brokers. Ascent results for the first 9 months of 2018 compared to the same period in 2017, excluding Unitrans, showed improvements in revenue, operating income and adjusted EBITDA. The domestic freight management and retail consolidation operations both generated revenue and earnings growth somewhat offset by softness in the international freight forwarding business. Revenues ex Unitrans were up year-over-year by 14.5% to $425.2 million, and adjusted EBITDA increased by 32.2% to $25 million. Mike will provide more color on the segments in his discussion of the business trends. Slide 14 reconciles net income or loss to the adjusted EBITDA by segment for the first 9 months of 2018 versus the same period of 2017. The TES and Ascent segments posted improved performance year-over-year for the reasons discussed previously, which was offset by -- which was partially offset by the lower performance in the LTL segment. However, we are positive on the long-term impact the structural changes we are making in LTL will have on the future results. Slide 15 is similar to the earlier chart, summarizing the improvement year-over-year for the third quarter. We adjusted the numbers to exclude the impact of Unitrans. In this case, the 9 months' performance is better except for the LTL segment, but I would also note that excluding the $14.8 million of adjusted EBITDA losses for LTL in the first 9 months of 2018, the adjusted EBITDA for the remainder of the company is over $29 million in 2018 year-to-date. That is more than double the adjusted EBITDA for the first 9 months of 2017, excluding LTL of $12.8 million. While we continue to execute on our strategy for LTL, the other segments generated improved bottom line performance. Slide 7 -- 16 talking about liquidity. In September, we reached an agreement with our ABL lenders on Amendment 5 after crossing the fixed charge coverage trigger period, and we were also able to extend to January 1, 2019 the final draw date for the remaining $17.5 million sale of E-1 preferred shares. We have over $40 million of available funds between the ABL facility and the Series E-1 commitment. We've also been able to add fleet equipment financed by the Captive Finance companies of OEM manufacturers and other lenders. We plan to continue to use these financing sources to replace aging rolling stock and add capacity for the balance of this year and 2019. Upgrading the fleet will have a positive impact on fleet rent expense and repairs -- fleet rent expense, repairs -- and repairs and maintenance for both our TES and LTL segments. Slide 17. My last slide reflects the change in our capitalization since the beginning of the year. We have reduced bank debt while increasing the amount of capital leases from the funding sources I just mentioned, to acquire new rolling stock assets. We have not made any cash payments on the preferred stock this year, and the liability has increased from the accrual of dividends as well as fair value market adjustments. As the value of the preferred has grown, the common stock price has declined and the capitalization is more heavily weighted to the debt side. I would also note that while the book value of the preferred is $368.8 million at 9/30 the projected redemption cost of those shares today would be over $400 million. Now let me turn the call over to Mike Gettle, our President and Chief Operating Officer, who will discuss the trends in our business.
Good morning, and thanks, Terry. I'm pleased to be able to share some additional commentary regarding the operations in each of our segments, and I'll start with Truckload & Express on Chart 19. In this segment, our revenue in Q3 was $280 million, an increase of 7.6% over 2017 Q3, and our adjusted EBITDA was $5.7 million and increased 19.4% over the same period in 2017. Our Truckload & Express strategy is centered around integrations that improve our scale and right size our capacity to address both scheduled and unscheduled freight needs. Our over-the-road capabilities include scheduled and expedited dry van, temperature controlled and flatbed fleets and their related brokerage. Our temperature-controlled fleet was successfully transitioned to positive EBITDA in Q3, following our restructuring and after losses in 2017 and the first half of 2018. Our dry van fleet is currently underperforming, as cost increases have outpaced changes in contracted rates and as expedited rates declined from levels earlier in the year. Our brokerage revenue growth has declined as compared with the first half, primarily due to reductions in expedited dry van loads and rates. Our Q3 intermodal revenue growth improved to 14% from a strengthening in rates, which has been partially offset by reductions in load counts. We had continued growth in air revenues in Q3, as tight market continues to favorably impact demand and rates. The growth in revenue from our fleet was more moderate in Q3 due to aircraft availability and the origin locations of freight, which were covered by brokered aircraft. Turning to LTL on Chart 20. Our revenue in Q3 was $114 million, down by 3% over 2017 Q3, and our EBITDA was a loss of $4.2 million, and that loss was $3 million or 42% lower than a year ago. Our strategy at Roadrunner Freight is to focus on our core competencies as a metro-to-metro long-haul carrier. This includes 3 main elements: reducing our pickup and delivery footprints, remove unprofitable areas and redeploy assets to more focused lanes; using sales and pricing discipline to drive volume into strategic lanes; and driving improvements in shipment reliability and visibility through investments in technology, centralization of our teams and process harmonization across the network. Our Q3 revenue decline of 3% was driven by a reduction in shipments per day of 16.8%, which reflects our focus on reducing our pickup and delivery footprint; reducing unprofitable freight; improving our freight profile; and building density in strategic lanes. While shipment counts declined, this focus produced improved Q3 results in revenue per shipment and yield with revenue per shipment, including fuel, increasing by 16.4%, and yield, including fuel, increasing by 7.6% as compared with a year ago. And the 8.2% increase in weight per shipment is also a reflection of our improving freight profile. We are enjoying success in driving more Roadrunner Freight revenue into our metro-to-metro Tier-1 lanes, with 62.3% of our revenue in Q3 in Tier-1 lanes as compared to 55.7% a year ago. From a cost perspective, our line-haul costs continue to be a headwind versus 1 year ago, due to the increased market pressure and driver shortage. However, our focus on yield, reducing service areas and improving our freight profile is improving our pickup and delivery cost and our [ DA ] cost. Turning to Ascent Global Logistics on Chart 21. Our revenue in Q3 was $146 million, an increase by 15.6%, and our adjusted EBITDA was $8.7 million and was 48% higher than 2017 Q3. These comparisons to 2017 are after eliminating the performance of Unitrans. 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 domestic transportation management system. We had a modest decline in the sequential growth rate in our domestic freight management, which was driven by a more stable truckload brokerage market. Our year-to-date revenue trends have been driven by improved freight selection and more disciplined pricing. However, Q3 introduced improved load count growth with more modest yield improvement. International freight forwarding turned to growth in Q3 from declines earlier in the year as a result of rate increases and new customers. Together, we believe, with some impacts from accelerated shipments by customers in anticipation of potential future tariff impacts. Our retail and consolidation offering continued to enjoy strong growth from both existing and new customers. This is driven by the investments we made in 2017 in the areas of technology, warehouse racking and our management team, which have improved our capacity and execution. In addition, we believe Walmart's On Time In Full requirements help us stimulate demand from smaller customers. That concludes our comments on the operating segments, and I'll turn the presentation back over to Curt.
Thanks, Terry and Mike. I'll next provide an update on our business improvement guideposts and our outlook. On Slide 23, we are tracking our business reporting -- I'm sorry, our business improvements in 5 phases. As we've indicated before, we're now in the second phase of our business improvement simplification and integration, and we believe that the completion of the capital structure improvements will be a positive step as part of this phase that will support the operational improvements that we've outlined on the call. On Slide 24, we listed out and provide you with an update on key 2018 simplification and integration initiatives by segment. Within our Truckload & Express services segment, we continue to invest in capacity and industry-leading technology in our active on-demand air and ground expedited business, which is performing very well and we continue to invest in it. We have restructured and improved the capabilities of our temperature-controlled and intermodal services businesses, and we expect -- we're seeing better results in Q3, and we expect better results as we -- even better results as we move into 2019. As previously stated, we are currently focused on structural improvement of our dry van fleets, where we're not performing as well as we need to. In our LTL segment, we continue to invest in a long-term recovery, and our -- I'm happy to report our new management team is really driving forward, as they planned on the network improvements that Mike outlined, on key IT investments and on improved cost control. As you heard earlier on the call, Ascent Global Logistics is performing very well, but we aren't taking anything for granted. We're continuing to invest in the people and technology, coupled with the ongoing integration work within the segment, which will make us more productive and help us be even more on strategy as we move into 2019. On Slide 25, as Terry reported, in the third quarter, we were able to accelerate our investment in upgrading our fleet equipment. Over the next 12 months, we have financial commitments to continue to upgrade our fleets, which will not only improve our maintenance and reduce our short-term equipment lease cost, but it will also dramatically improve our fuel efficiency and improve our service levels and our productivity. So it's a win for our customers, and it's a win for us by being able to upgrade our fleets. And just to point that out, if you study our 10-Q filing for the third quarter, you'll see that in our TES segment, our results were negatively impacted year-to-year by about $8.6 million of higher maintenance and equipment lease costs, which we believe we can impact as we move into 2019. Although we continue to face difficult industry-wide trends related to driver recruitment and retention, upgrading our fleets coupled with adjusting our compensation and retention programs is having a positive impact and we'll keep working at it as we move forward. We continue to invest in IT enhancements and new capabilities across all 3 segments. We are also working to improve our internal controls and our corporate functions to support our growth in 2018 and beyond. Lastly, on our key financial goals, as you know, we've dramatically increased the focus on return on invested capital across all of our business units, and we're continue -- continuing to work to improve our operating margins, so that by 2020, we are much closer to industry norms. Looking at Slide 26. This slide provides a good overview of our discussion today, and also lets you know where our heads are in terms of our outlook. We expect the benefits from the 2018 integration work and investments will have even greater impact in 2019 and in future years. And again, that's across all 3 of our segments. These efforts are expected to drive expansion of our operating margins, as I spoke to earlier. And we still are confident that off of a relatively low base of 2018 adjusted EBITDA in the $20 million to $25 million range, we expect to achieve adjusted EBITDA of over $100 million by 2020. And in order to help you better understand our expected future performance, I'd like to provide some additional information so that you have a better way to bridge our EBITDA improvement. So let me start by pointing out that our Ascent Global Logistics and our active on-demand air and ground expedite businesses are performing very well and are expected to earn in calendar 2018 revenue of over $1.2 billion and EBITDA in excess of $70 million. As I mentioned before, we continue to invest in these businesses and expect to see continued growth in future years. So if we start with our expected 2018 EBITDA, excluding LTL, that number is about $45 million, so if you think about a bridge, use that as your starting point, and if we add a conservative estimate for incremental EBITDA contribution from Ascent and active on-demand in 2019 and 2020 of somewhere between $4 million and $8 million per year and build up from there. As we mentioned earlier, our temperature controlled and intermodal services businesses are now on track to earn over $12 million of annualized EBITDA, which is a run rate improvement off of expected 2018 EBITDA of over $8 million. And with additional fleet and other investments, we believe these businesses will have a similar $8 million benefit in 2020, in that range.
Our dry van fleets are clearly underperforming this year, but as improvements that are in process take hold in 2019, these businesses have the potential to earn incremental EBITDA of between $3 million and $7 million in 2019. And with full improvements, $20 million to $25 million in 2020. As you know, our LTL business continues to run at a loss, but we continue to invest. We've invested in a new management team that is rebuilding and refocusing our network from the ground up. As we've seen improvements in operating and service metrics, we know those will translate ultimately into better financial results, and at this point, we're planning to reach positive EBITDA sometime in 2019. We're thinking that 2019 EBITDA will be breakeven-ish and that positive EBITDA contributions will begin in 2020 in the $5 million to $10 million range. We don't expect optimized LTL EBITDA until sometime after 2020. So if you kind of sum up all those expectations, I think you can do the math yourself, but it would result in EBITDA of somewhere in the $60 million to $65 million range in 2019 and somewhere in the $100 million to $135 million range in 2020. So we've got a good plan in place, and it's also important for you to note that, I think, the margin improvement and the sum of the parts nature of our business, that's really embedded in our business, should over time support a much higher equity valuation. As I mentioned in our opening, we continue to work hard on the planned capital structure, simplification and improvement, which we believe will support our long-term business plans and increase the speed and likelihood of a full operational recovery. So those are our prepared comments for today. We appreciate you all being on the call and taking the time with us. And we'll now turn it over for some Q&A.
[Operator Instructions] Our first question comes from Bruce Chan from Stifel.
I guess, first and foremost, operations aside, the biggest issue on most people's minds right now is probably the rights offering. And I'm wondering if you can maybe provide us with an update on the progress and time line as you're thinking about it there?
Bruce, thanks for your question. This is Curt. I'd be happy to respond to your question on the rights offering. As you know, we've -- we filed a preliminary S-1 and a preliminary proxy, which outline a rights offering which would raise $450 million, which would be used to retire all the preferred stock and provide an additional $35-plus million of additional capital for the business. And as part of that plan, we would issue rights, about 900,000 rights to acquire shares at $0.50, and the offering would be backstopped by Elliott Management in order to ensure a fully funded offering. In terms of the schedule, Bruce, we are working -- moving forward, the next step for us would be to file a definitive final proxy, which I think we're within -- sometime in the next week or so, we expect to file that, which will set the schedule for our annual meeting. And in that proxy, there is a number of resolutions that will be voted on by the shareholders related to the rights offering. And assuming we get the vote that we expect to get, we would then be in a position to complete the rights offering sometime in the first quarter, hopefully, early in the first quarter.
Okay. Great. That's really helpful. And then I guess, moving on to sort of the big picture. Curt, you outlined some targets or assumptions as far as segment improvement and what the adjusted EBITDA numbers might look like over the next couple of years. Obviously, we're in a period of a little bit more macro uncertainty, although we got a little more certainty last night, but can you maybe talk to us about what assumptions are underpinning those targets and goals as far as EBITDA and segment performance? Maybe talk to us about what the outlook for the company looks like if we see a sooner-than-expected cyclical downturn? And then also, maybe addressing some of the bigger segments out there, particularly, maybe Ascent and active on-demand, what the sensitivity to those particular business segments look like to the economic environment?
Yes, Bruce, that's a great question. I -- you have a much better feel for when the next cycle -- when the cycle is going to turn. But we all know at some point, the economy will cycle and so will the transportation business. And so one thing we've been doing all along here is really trying to build each of our business units and each of our segments so that they are all more resilient. So they perform at a more predictable level throughout the natural business cycles, that the economy and the transportation industry go through. And frankly, we weren't really well positioned to take full advantage of the current up-cycle that we've been in for about last 12 months or so. We just weren't ready for it, because we didn't have the equipment in place, and we were still reorganizing and we were still working on our capital structure, but we will be ready for the next cycle, which will be a down cycle, and then the next up cycle after that. So I'm very confident that we can weather the storm. As it gets to our forecasts, we have forecasted kind of steady to, I'd say, slightly down rates for '19, certainly no improvement. And then we have forecast in 2020 some natural declines, especially in truckload rates. So those are embedded in our -- in the numbers that I laid out for you, but those things don't trump our operational improvements, which are not dependent on rates, to a large extent. Really more things that are within our control. And then the last point I want to make is on Ascent and active on-demand. These are businesses that will perform very well in any cycle, being predominantly 3PL, 4PL and brokerage businesses or warehousing businesses. So we wouldn't expect a huge impact on those businesses. Mike, do you have anything you want to add, that I missed?
Well, I would underscore the resiliency of Ascent. The air business is event-driven, and if we look at that business on a rolling 12-month basis over almost any period it produces very consistent results, but from quarter-to-quarter, that can be a little more lumpy. But I think otherwise the long-term trends are supportive.
Okay, great. And then, Curt, just to clarify, you remember, you mentioned that you're modeling or expecting down rates for 2019. That's negative growth or rate decline as opposed to a smaller rate of growth. Is that fair?
2019 -- and I was speaking more in truckload. I think in 2019, we were flat to slightly down on rates with the rate decline in -- planned in 2020. Now in LTL, LTL is a little different animal, as you know, Bruce, and it looks like we're expecting the industry will have a reasonably good GRI, not -- maybe not as high as this year, but I think I already saw something from FedEx on a 5% or a 6% increase in the GRIs for -- on the LTL side. So I think there we would expect to follow the industry in 2019 and see rate increases. And then we would have to wait and see what happens in 2020.
Okay. Great. And then it's good to see you guys starting to add some new equipment. I'm sure the firmer kind of financial footing is helping in that regard. Any thoughts on what the kind of pace of those additions is going to look like over the next few quarters or so? And how that's going to start to affect recruitment and PT costs and kind of that salaries, wages and benefits line?
That's another great question, Bruce. We -- because it took longer for us to get current with our financials here in 2018 -- that didn't happen until about mid-year, we really weren't able to lock in the equipment financing that we would have liked. We were able to get it, but we got it later in the year. So we didn't -- the equipment improvements, as you saw in the numbers that we published, really didn't start happening in earnest until the third quarter. So it cost us some time, and it cost us some money in the first half, and we won't be caught up this year. But over the next 12 months, we expect to be caught back up to where we should be on our replacement cycles. And you'll see that, as we look at the average age of our fleets and our various Opcos, we've got a little -- we're a little long in the tooth right now, but we'll correct that over the next 12 months.
Okay. Great. And then just moving over to the Prime business within Ascent. Hub, obviously, just announced an acquisition of CaseStack, which I suppose is a competitor of yours. Can you just give us some color on maybe what that market looks like in terms of TAM and your share? And maybe how Hub's entering in the market is affecting what you're doing in that consolidation business?
Well, first and foremost, I think it's a wonderful business. Just both the business that we have, which is Prime Distribution, and from what I know of CaseStack. Because it provides a very valuable service to customers, and it truly is a win-win scenario for our customers. It's a profitable business for us, and it really helps retailers in terms of managing how the inventory flows into their systems -- or flows into their facilities. And I think as there's more competition between the traditional brick-and-mortars and the online retail and more emphasis on productivity, solutions like we provide are going to be more in favor. So I think there's a lot of growth in the business we have. And that's why we continue to invest in it.
Great. And then just one final question from me. Mike, there was a lot of information in your kind of segment of the presentation there, but I think you mentioned some headwinds in international forwarding this quarter. Can you may be shed some light or some color on what those headwinds were, and how you expect them to play out for the remainder of the year and maybe into early 2019?
Yes. So I think actually we might have had a little bit of a tailwind here in terms of some of the new customers that we brought on earlier in the year started to build volumes, and we've seen improving rates versus last year. We do think it's difficult to quantify across all of our customers, but we have seen some building of shipment volumes that are higher than we would expect in this past quarter that could be from customers advancing shipments in anticipation of future tariff increases. So that might play out to a little softer Q1 revenue for us, so we wanted to call that out.
Okay. That makes sense. And can you just remind us of what your lane exposure looks like on that Asia to U.S. Trans-Pacific?
I don't have that figure at my fingertips here, Bruce.
[Operator Instructions] Our next question comes from Boris Senderzon from Hilbar Capital.
My question is for Curt. Curt, I'd like to get your take on why the rights offering proposal is in the best interest of common shareholders as opposed to the asset sales?
Boris, that's a great question, and we've done a tremendous amount of work to look at all of our alternatives, and we just -- at this point, we think by far, the best alternative is to improve our capital structure and continue to build the business as it's constructed today with the integration and the simplification initiative that we've got underway.
So the benefits that we see are that while there's no repayment requirement on our preferred stock until 2023, there are significant benefits to aligning all of our shareholder interests and simplifying our capital structure and eliminating the high interest cost of the preferred stock. It also allows us to address perceptions about the business, especially from customers and vendors, caused by a low valuation of the common equity. As the preferred increases, the common goes down, and that is explainable, but it takes a lot of time to explain, it's not a normal capital structure for a public company. It also increases our availability and improves our cost of capital for our ABL line of credit facility and our fleet equipment financing. So it gives us a much better overall capital structure with a lower cost. And as I've said many times, I think coupled with the recovery mode we're in, in certain of our businesses, it increases the speed and likelihood of a full recovery of our -- of all of our businesses. So that's why we support it, and we will continue to look at all alternatives going forward, but improving and simplifying our capital structure will really help our momentum in the marketplace.
Next question comes from [ Robert Strogo ] from [ RAS Investments. ]
Gentlemen, our stock has gone down this last year from $8, almost $9 and a lot higher prior to that to what it is now at $0.50. We don't have that many shares. We've got a market cap of $19 million on our stock, and you're going to issue stock at $0.50. You're going to issue an awful lot of stock. It's going to dilute the hell out of what we have now, but this preferred, apparently, is eating us alive. Frankly, we lost a lot of money and a lot of people -- everybody that owns your stock has lost a lot of money. And then we'll be tax selling on top of the $0.50, so I have concerns that you could even be able to raise the $0.50 next year, or do you have a backstop on that $0.50? Because we're going to have to sell our stock because many of us have paid $7 or $8 for our stock. And at the end of the year, we're going to be -- there will be tremendous tax selling of this company. Then you have rights offering. So I hope you give us enough time to exercise our rights if we choose to, so that we could sell our stock and have the rights and choose to exercise them in January or February whenever they -- you can do that. It's about time you thought about us stockholders because we've been clobbered in this stock. And I hear how great you're doing, but there's nobody doing worse than the shareholders of your company.
Well, [ Robert, ] I appreciate you taking the time and appreciate your comments. You make a lot of good points. Unfortunately, there's nothing we can do about the past, but what we can do is do everything we can to make the future better for all of our shareholders and all of our stakeholders. But some of the points that, we understand, we have been moving as quickly as we can to try to not only improve the business but to improve the capital structure and try to -- as I said, take away some of the impact of the preferred stock, which does kind of eat away at the common equity and does have a very high interest cost. So we're moving as quickly as we can, and as I outlined earlier, we're now in a position to move forward and complete the offering and be able to run the company in the way that we'd like to run it going forward.
Well, the stock hit $0.46 today. It's $0.50 right now. Do you really think you're going to be able to sell stock at $0.50 in the strong market that we're in now with tax selling at the end of the year? Are you going to issue warrants with that too?
Well, as we've outlined, I think, you can -- we will be issuing kind of a final definitive proxy, which will have the final details around the offering, but as I outlined earlier, we do anticipate that we'll be able to raise $450 million and retire all the preferred, which is a good thing, I think, for everybody. And we do have a backstop agreement in place to ensure that the offering is fully subscribed.
And $450 million is 900 million shares, am I right?
Yes, 900 million. Yes, you're right.
And right now, you have very few shares outstanding. You have 39 million shares?
That's correct.
So obviously, we're going to be swamped with these shares. And even though we have such few shares outstanding now, we can't maintain a $0.50 price. So I hope you guys know what you're doing. You're going to have to get an awful lot of approval to dilute the stock that much, you have to get regulatory approval, I imagine. And who's going to buy all those shares? Is that where you're going to buy those shares or the preferred holders? Who owns all that preferred, I wonder, that's bleeding us so dry?
So I think for purposes of the call today, we need to move on, but I think all those questions can easily been answered if you just refer to our public filings and especially the proxy statement.
And I'm not showing any further questions. I would now like to turn the call back to Curt Stoelting, CEO, for closing remarks.
Okay. Thanks, Justin, for your -- running the call for us today, and I want to thank everybody for their time. We will keep at it on all fronts, and we look forward to speaking with you all in the future. Take care.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. And everyone, have a great day.