YRC Worldwide (YRCW) Offers Prelim. Q3 Results

YRC Worldwide Inc. (NASDAQ: YRCW) announced that it has updated the projected financial information for full-year 2017 that was provided as part of the process to extend the Company’s Term Loan Credit Agreement. The Company is also providing preliminary financial results for third quarter 2017.

The primary factors contributing to the update include:

• The occurrence of significant weather during the third quarter 2017;
• A shortage of revenue equipment;
• Higher than expected purchased transportation expense;
• Higher than anticipated maintenance expense;
• Higher than expected employee overtime; and
• Underperformance by one of the Regional operating companies.

“We are updating the financial projections now that we have a preliminary view of our third quarter 2017 results,” said James Welch, chief executive officer of YRC Worldwide. “Hurricanes Harvey and Irma impacted operations at YRC Freight and Holland during the third quarter leading to the temporary closing or limited operations at 28 terminals. The hurricanes also had a cascading effect on the networks that delayed the delivery of shipments and unfavorably impacted productivity over roughly a five-week period. Additionally, we incurred costs associated with relocating revenue equipment to the impacted facilities as well as incurring employee overtime in order to properly initiate recovery efforts in response to these extraordinary weather events. While it is difficult to fully quantify the lost revenue and incremental costs associated with these natural disasters, they have had an unfavorable impact on our results. As we move into 2018, we expect the recovery and restoration efforts to contribute to an already positive economic environment.

“We have also been adversely impacted by higher than expected purchased transportation expense in the third quarter primarily attributable to a shortage of revenue equipment. The impact has been more acute as capacity has tightened more quickly than anticipated across the trucking sector. The shortage of revenue equipment has led to higher than expected local purchased transportation and short-term rental expense and an increase in maintenance expense on the existing fleet. The onboarding of new revenue equipment in 2017 has been weighted towards later in the year as the Company focused on successfully amending and extending the term loan. We expect to take delivery of more than 800 new tractors and 2,400 new trailers in fourth quarter 2017 and first quarter 2018 which we anticipate to help mitigate the increase in purchased transportation and maintenance expense.

“Finally, we recently named Howard Moshier as President of New Penn. He most recently served as Senior Vice President of Operations at YRC Freight and we look forward to working with him in his new capacity. We continue to believe in the strength of New Penn and in its reputation for exemplary customer service,” concluded Welch.

For the three months ended September 30, 2017, the Company expects to report consolidated operating revenue of approximately $1.25 billion and consolidated operating income of approximately $40 million. The Company also expects to report Adjusted EBITDA of approximately $81 million.

For full-year 2017, the Company continues to project consolidated operating revenue of approximately $4.8 billion to $5.0 billion. The projected full-year 2017 consolidated projected operating income has been lowered from approximately $150 million to $170 million to approximately $100 million to $120 million. The Company also lowered the projected Adjusted EBITDA from approximately $320 million to $340 million to approximately $280 million to $300 million. Investment in capital expenditures and new operating leases for revenue equipment continues to be projected to equal 6% to 8% of operating revenue in 2017.

(Street sees Q3 revennue of $1.25 billion)

Cautionary Statement

Although the third quarter 2017 ended September 30, 2017, the financial and operational information included in this news release reflects management's estimate of results based on currently available information. There can be no assurance that these estimates will be realized, and estimates are subject to risks and uncertainties, many of which are not within the Company's control. Accordingly, you should not place undue reliance upon this preliminary financial and operational information.

Third Quarter 2017 Earnings Conference Call

On Thursday, November 2, 2017, at 4:30 p.m. ET, company executives will host a conference call with the investment community to discuss third quarter 2017 financial results. Third quarter earnings will be released the same day, Thursday, November 2, 2017, following the close of the market.

The call will be webcast and can be accessed live or as a replay via YRC Worldwide’s website www.yrcw.com.

Non-GAAP Financial Measures

In this Current Report on Form 8-K, the Company refers to certain financial measures that are not prepared in accordance with the United States generally accepted accounting principles (GAAP). Adjusted EBITDA, which is defined as “Consolidated EBITDA” under the Term Loan Agreement, is a non-GAAP measure that reflects Company’s earnings before interest, taxes, depreciation, and amortization expense, and further adjusts for letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, restructuring professional fees, nonrecurring consulting fees, expenses associated with certain lump sum payments to the Company’s union employees and gains or losses from permitted dispositions and discontinued operations, among other items, as defined in the Company’s credit facilities. Adjusted EBITDA is used for internal management purposes as a financial measure that reflects the Company’s core operating performance. In addition, management uses Adjusted EBITDA to measure compliance with financial covenants in the Company’s credit facilities and to pay certain executive bonus compensation. We believe our presentation of Adjusted EBITDA is useful to investors and other users as this measure represents key supplemental information our management uses to compare and evaluate our core underlying business results both on a consolidated basis and across our business segments, particularly in light of our leverage position and the capital-intensive nature of our business. Further, Adjusted EBITDA helps investors to understand how the company is tracking against our financial covenants in our term loan credit agreement as this measure is calculated as prescribed in our term loan credit agreement and serves as a driving component of key financial covenants. However, these financial measures should not be construed as better measurements than net income, as defined GAAP. Adjusted EBITDA has the following limitations:

• Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to fund restructuring professional fees, nonrecurring consulting fees, letter of credit fees, service interest or principal payments on our outstanding debt or lump sum payments to the Company’s union employees required under the ratified Memorandum of Understanding;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements;
• Equity-based compensation is an element of the Company’s long-term incentive compensation package, although Adjusted EBITDA excludes employee equity-based compensation expense when presenting the Company’s ongoing operating performance for a particular period; and
• Other companies in the Company’s industry may calculate Adjusted EBITDA differently than it does, limiting its usefulness as a comparative measure.

Because of these limitations, the Company’s non-GAAP measures, including Adjusted EBITDA, should not be considered a substitute for performance measures calculated in accordance with GAAP. The Company compensates for these limitations by relying primarily on its GAAP results and using its non-GAAP measures as secondary measures.

The following table provides a reconciliation of approximate operating income to approximate Adjusted EBITDA for the three months ending September 30, 2017.

The following table provides a reconciliation of projected operating income to projected Adjusted EBITDA for the twelve months ending December 31, 2017.

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