ROADRUNNER TRANSPORTATION SYSTEMS, INC. This discussion and analysis presents our operating results for each of our three most recent fiscal years and our financial condition as ofDecember 31, 2019 . You should read the following discussion and analysis in conjunction with "Selected Financial Data" and our consolidated financial statements and related notes contained elsewhere in this Form 10-K. This discussion and analysis of our financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A. "Risk Factors." Overview We are a leading asset-right transportation and asset-light logistics service provider offering a full suite of solutions under the Roadrunner and Ascent Global Logistics brands. The Roadrunner brand offers less-than-truckload and truckload services. Ascent Global Logistics offers domestic freight management and brokerage, international freight forwarding, customs brokerage and premium mission critical air and ground logistics solutions. We serve a diverse customer base in terms of end-market focus and annual freight expenditures. We are headquartered inDowners Grove, Illinois with operations primarily inthe United States . EffectiveApril 1, 2019 , we changed our segment reporting when we separated our Ascent OD air and ground expedite business from our TL businesses. Segment information for all prior periods has been revised to align with the new segment structure. Our four segments are as follows: Ascent Global Logistics. Within our Ascent Global Logistics (or "Ascent") business, we offer a full portfolio of domestic and international transportation and logistics solutions, including access to cost-effective and time-sensitive modes of transportation within our broad network. Our Ascent business is reported in two segments. • Our Ascent Transportation Management segment ("Ascent TM") provides
domestic freight management solutions including asset-backed truckload
brokerage, specialized/heavy haul, LTL shipment execution, LTL carrier rate
negotiations, access to our Transportation Management System and freight
audit/payment services. Ascent TM also provides clients with international
freight forwarding, customs brokerage, regulatory compliance services and
project and order management. Ascent TM serves its customers through either
its direct sales force or through a network of independent agents. Our
customized Ascent TM offerings are designed to allow our customers to
reduce operating costs, redirect resources to core competencies, improve
supply chain efficiency, and enhance customer service.
• Our Ascent On-Demand, formerly Active On-Demand ("Ascent OD") segment
provides ground and air expedited services featuring proprietary bid
technology, supported by our fleets of ground and air assets. We specialize
in the transport of automotive and industrial parts. On-Demand air charter
is the segment of the air cargo industry focused on the time-critical
movement of goods that requires the timely launch of an aircraft to move
freight. These critical movements of freight are typically necessary to
prevent a disruption in the supply chain due to lack of components. Theprimary users of on-demand charter services are just-in-time manufacturers,
including auto manufacturers, component manufacturers and heavy equipment
makers.
Less-than-Truckload. Our LTL segment involves the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments throughoutthe United States and parts ofCanada . With a large network of LTL service centers and third-party pick-up and delivery agents, we are designed to provide customers with high reliability at an economical cost. We generally employ a point-to-point LTL model that we believe serves as a competitive advantage over the traditional hub and spoke LTL model in terms of fewer handlings and reduced fuel consumption. Truckload. Within our TL segment we serve customers throughoutNorth America . We provide the following services: scheduled and expedited dry van truckload, temperature controlled truckload, flatbed (divested onDecember 6, 2019 ), intermodal drayage (divested onNovember 5, 2019 ) and other warehouse operations. We specialize in the transport of automotive and industrial parts, frozen and refrigerated foods, including dairy, poultry and meat and consumers products, including foods and beverages. Roadrunner Dry Van, Temperature Controlled, Intermodal (divested onNovember 5, 2019 ) and Flatbed (divested onDecember 6, 2019 ) provide specialized truckload services to beneficial cargo owners, freight management partners and brokers. We believe this array of technology, services and specialization best serves our customers and provides us with more consistent shipping volumes in any given year. 38 -------------------------------------------------------------------------------- Critical Accounting Policies and Estimates The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying consolidated financial statements and notes. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. Application of the accounting policies described below involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. The following is a brief discussion of our critical accounting policies and estimates.Goodwill and Other IntangiblesGoodwill represents the excess of the purchase price of all acquisitions over the estimated fair value of the net assets acquired. We evaluate goodwill and intangible assets for impairment at least annually onJuly 1st or more frequently whenever events or changes in circumstances indicate that the asset may be impaired, or in the case of goodwill, the fair value of the reporting unit is below its carrying amount. The analysis of potential impairment of goodwill requires us to compare the estimated fair value at each of its reporting units to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit, a non-cash goodwill impairment loss is recognized as an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. For purposes of the impairment analysis, the fair value of our reporting units is estimated based upon an average of the market approach and the income approach, both of which incorporate numerous assumptions and estimates such as company forecasts, discount rates and growth rates, among others. The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which we compete, the discount rate, terminal growth rates, and forecasts of revenue, operating income, and capital expenditures. The allocation requires several analyses to determine fair value of assets and liabilities including, among others, customer relationships and property and equipment. Although we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of the goodwill impairment charge, or both. Future declines in the overall market value of our stock may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value. Prior to the change in segments, we had four reporting units for our three segments: one reporting unit for our TL segment; one reporting unit for our LTL segment; and two reporting units for our Ascent TM segment, which are the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit. In connection with the change in segments, we conducted an impairment analysis as ofApril 1, 2019 . Due to the inability of the TES businesses to meet forecast results, we determined the carrying value exceeded the fair value for the TES reporting unit. Accordingly, we recorded a goodwill impairment charge of$92.9 million which represents a write off of all the TES goodwill. Given the fact that all of the goodwill was impaired, there was no remaining TES goodwill to allocate to the TL and Ascent OD segments. The fair value of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit exceeded their respective carrying values by 3.1%, and 109.0%, respectively; thus no impairment was indicated for these reporting units. The goodwill balances of the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit as ofApril 1, 2019 were$98.5 million and$73.4 million , respectively. The fair value of the Warehousing & Consolidation reporting unit exceeded its carrying value, thus no impairment was indicated for this reporting unit. The Ascent OD, LTL and TL segments had no remaining goodwill as ofApril 1, 2019 . After the change in segments, we have five reporting units for our four segments: one reporting unit for our TL segment; one reporting unit for our LTL segment; one reporting unit for our Ascent OD segment; and two reporting units for our Ascent TM segment, which are the Domestic and International Logistics reporting unit and the Warehousing & Consolidation reporting unit. We conduct our goodwill impairment analysis for each of our five reporting units as ofJuly 1 of each year. Since the carrying value of the Domestic and International Logistics reporting unit was more than fair value, we recorded a goodwill impairment charge of$34.5 million . The fair value of the Warehousing & Consolidation reporting unit exceeded its carrying value, thus no impairment was indicated for this reporting unit. The Ascent OD, LTL and TL units had no remaining goodwill as ofJuly 1, 2019 . Due to fourth quarter results, we identified a triggering event and conducted an interim test of impairment atDecember 31, 2019 for the Domestic and International Logistics reporting unit. As the carrying value of the reporting unit was more than fair value, we recorded an impairment charge to goodwill of$40.1 million in the fourth quarter. After these impairment charges, the Domestic 39 -------------------------------------------------------------------------------- and International Logistics reporting unit has remaining goodwill of$23.9 million as ofDecember 31, 2019 . The Warehousing and Consolidation reporting unit had remaining goodwill of$73.4 million atDecember 31, 2019 . After the fourth quarter 2019 impairment charge, the consolidated goodwill and intangible assets value was$123.2 million . The fair value of the Warehousing & Consolidation reporting unit exceeded its respective carrying values, thus no impairment was indicated for this reporting unit. The TL, LTL, and Ascent OD reporting units had no remaining goodwill as ofDecember 31, 2019 . As the carrying value of the Domestic and International Logistics reporting equaled fair value, if future results fall below projections or changes in the discount rate occur, further impairments could result. The table below shows the estimated fair value impacts related to a 50-basis point increase or decrease in the discount and long-term growth rates used in the valuation as ofDecember 31, 2019 . If future results fall below projections or changes in the discount rate occur, further impairments could result. Approximate Percent Change in Estimated Fair Value +/- 50 bps Discount Rate +/- 50bps Growth Rate Domestic and International Logistics reporting unit (1.7%) / 3.4% 1.7% /
(0.9%)
Other intangible assets recorded consisted primarily of definite lived customer relationships. We evaluate our other intangible assets for impairment when current facts or circumstances indicate that the carrying value of the assets to be held and used may not be recoverable. Indicators of impairment were identified in connection with the operating performance of one of our businesses within the LTL segment and two of our businesses within the TL segment. As a result,$9.5 million of non-cash impairment charges was recorded for the year endedDecember 31, 2019 . Revenue Recognition (effectiveJanuary 1, 2018 ) Our revenues are primarily derived from transportation services which includes providing freight and carrier services both domestically and internationally via land, air, and sea. We disaggregate revenue among our four segments, Ascent TM, Ascent OD, LTL and TL, as presented in Note 16, Segment Reporting, to our consolidated financial statements. Performance Obligations - A performance obligation is created once a customer agreement with an agreed upon transaction price exists. The terms and conditions of our agreements with customers are generally consistent within each segment. The transaction price is typically fixed and determinable and is not contingent upon the occurrence or non-occurrence of any other event. The transaction price is generally due 30 to 60 days from the date of invoice. Our transportation service is a promise to move freight to a customer's destination, with the transit period typically being less than one week. We view the transportation service we provide to our customers as a single performance obligation. This performance obligation is satisfied and recognized in revenue over the requisite transit period as the customer's goods move from origin to destination. We determine the period to recognize revenue in transit based upon the departure date and the delivery date, which may be estimated if delivery has not occurred as of the reporting date. Determining the transit period and the percentage of completion as of the reporting date requires management to make judgments that affect the timing of revenue recognized. We have determined that revenue recognition over the transit period provides a reasonable estimate of the transfer of goods and services to our customers as our obligation is performed over the transit period. Principal vs. Agent Considerations - We utilize independent contractors and third-party carriers in the performance of some transportation services. We evaluate whether our performance obligation is a promise to transfer services to the customer (as the principal) or to arrange for services to be provided by another party (as the agent) using a control model. Our evaluation determined that we are in control of establishing the transaction price, managing all aspects of the shipments process and taking the risk of loss for delivery, collection, and returns. Based on our evaluation of the control model, we determined that all of our major businesses act as the principal rather than the agent within their revenue arrangements and such revenues are reported on a gross basis. Contract Balances and Costs - We apply the practical expedient in Accounting Standards Update ("ASU") No. 2014-09, which was updated inAugust 2015 by ASU No. 2015-14, Revenue from Contracts with Customers ("Topic 606") that permits us to not disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied as of the end of the period as our contracts have an expected length of one year or less. We also apply the practical expedient in Topic 606 that permits the recognition of incremental costs of obtaining contracts as an expense when incurred if the amortization period of such costs is one year or less. These costs are included in purchased transportation costs in the consolidated financial statements. Self-Insurance Accruals We use a combination of purchased insurance and self-insurance programs to provide for the cost of auto liability, cargo damage, workers' compensation claims, and benefits paid under employee health care programs. Insurance reserves are established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. Recorded balances are based on reserve levels, which incorporate historical loss experience and judgments about the present and expected levels of cost per claim. We believe our estimated reserves for such claims are adequate, but actual experience 40 -------------------------------------------------------------------------------- in claim frequency and/or severity could materially differ from our estimates and affect our results of operations. We have engaged a third-party actuary to review our incurred but not yet reported reserves and development factors to ensure they are appropriate. A number of factors can affect the actual cost of a claim, including the length of time the claim remains open, trends in health care costs, accident frequency and severity, and the results of related litigation. Furthermore, claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous projections. All of these factors can result in revisions to prior projections and produce a material difference between estimated and actual costs. Accounts Receivable and Related Reserves Accounts receivable are uncollateralized customer obligations due under normal trade terms. We extend credit to certain customers in the ordinary course of business based on the customer's credit history. The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects management's best estimate of amounts that will not be collected. The allowance is based on historical loss experience and any specific risks identified in customer collection matters. Accounts receivable are charged off against the allowance for doubtful accounts when it is determined that the receivable is uncollectible. Rights Offering OnFebruary 26, 2019 , we closed our previously announced fully backstopped$450 million rights offering, pursuant to which we issued and sold an aggregate of 36 million new shares of our common stock at the subscription price of$12.50 per share. The net proceeds from the rights offering and backstop commitment were used to, among other things, fully redeem the outstanding shares of our preferred stock and to pay related accrued and unpaid dividends. See Note 15, "Related Party Transactions" in our consolidated financial statements included elsewhere in this Form 10-K for additional information. Sale of Intermodal OnNovember 5, 2019 , we completed the sale of Intermodal to Universal Logistics Holdings, Inc., based inWarren, Michigan , for$51.3 million in cash, subject to customary purchase price and working capital adjustments. Proceeds from the sale were used primarily to pay off a portion of outstanding debt amounts and to provide funding for operations. The results of operations and financial condition of Intermodal have been included in our consolidated financial statements within our TL segment until the date of sale. Sale of Flatbed OnDecember 9, 2019 , we completed the sale of Flatbed, for$30.0 million in cash, subject to customary purchase price and working capital adjustments. Proceeds from the sale were used primarily to pay off a portion of outstanding debt amounts and to provide funding for operations. The results of operations and financial condition of Flatbed have been included in our consolidated financial statements within our TL segment until the date of sale. Sale of Prime OnJanuary 28, 2020 , we entered into a definitive agreement to sell our subsidiaryPrime Distribution Services, Inc. to C.H. Robinson Worldwide Inc. for$225 million . The transaction closedMarch 2, 2020 . The results of operations and financial condition of Prime have been included in our consolidated financial statements within our Ascent TM segment until the date of closing. Sale of Unitrans OnSeptember 15, 2017 , we completed the sale of Unitrans. We received net proceeds of$88.5 million and recognized a gain of$35.4 million . Proceeds from the sale were used primarily to redeem a portion of the Series E Preferred Stock and to provide funding for operations. The results of operations and financial condition of Unitrans have been included in our consolidated financial statements within our Ascent TM segment until the date of sale. 41 -------------------------------------------------------------------------------- Results of Operations The following tables set forth, for the periods indicated, summary Ascent TM, Ascent OD, LTL, TL, corporate, and consolidated statement of operations data. (In thousands) Year ended December 31, 2019 Corporate/ Ascent TM Ascent OD LTL TL Eliminations Total Revenues$ 505,753 $ 465,512 $ 430,806 $ 475,074 $ (29,283 ) $ 1,847,862 Operating expenses: Purchased transportation costs$ 361,733 $ 396,660 $ 302,605 $ 214,850 (29,283 ) 1,246,565
Personnel and related benefits 55,932 35,717 74,012 108,226
39,654 313,541
Other operating expenses 65,173 20,021 83,258 168,225
33,536 370,213
Depreciation and amortization 6,318 8,664 5,422
28,918 9,682 59,004 Gain from sales of businesses - - - - (37,221 ) (37,221 ) Impairment charges 74,636 - 1,076 107,261 14,123 197,096 Operations restructuring costs - - - 20,579 - 20,579
Total operating expenses 563,792 461,062 466,373 648,059
30,491 2,169,777
Operating (loss) income (58,039 ) 4,450 (35,567 ) (172,985 ) (59,774 ) (321,915 ) Total interest expense
20,412
Loss from debt extinguishment 2,270
Loss before income taxes (344,597 )
Benefit from income taxes (3,660 )
Net loss $ (340,937 )
(In thousands) Year ended December 31, 2019
Corporate/
Ascent TM Ascent OD LTL TL Eliminations Total
Net (loss) income $ (58,249 ) $ 4,450 $ (36,469 ) $ (176,023 ) $ (74,646 ) $ (340,937 )
Plus: Total interest expense 359 - 902 3,038 16,113 20,412
Plus: Benefit from income
taxes (149 ) - - - (3,511 ) (3,660 )
Plus: Depreciation and
amortization 6,318 8,664 5,422 28,918 9,682 59,004
Plus: Impairment charges 74,636 - 1,076 107,261 14,123 197,096
Plus: Long-term incentive
compensation expenses - - - - 14,790 14,790
Less: Gain on sales of
business - - - - (37,221 ) (37,221 )
Plus: Loss on debt
restructuring - - - - 2,270 2,270
Plus: Corporate restructuring
and restatement costs - - - - 13,721 13,721
Plus: Operations
restructuring costs - - - 20,579 - 20,579
Plus: Contingent purchase
obligation - - - - 360 360
Adjusted EBITDA $ 22,915 $ 13,114 $ (29,069 ) $ (16,227 ) $ (44,319 ) $ (53,586 )
42
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(In thousands) Year ended December 31, 2018
Corporate/
Ascent TM Ascent OD LTL TL Eliminations Total
Revenues $ 573,072 $ 672,965 $ 452,281 $ 572,701 $ (54,878 ) $ 2,216,141
Operating expenses:
Purchased transportation costs 421,048 573,483 323,019 255,743 (54,878 ) 1,518,415
Personnel and related benefits 52,273 37,376 70,551
123,171 26,382 309,753 Other operating expenses 66,237 23,412 81,749 195,340 30,730 397,468
Depreciation and amortization 5,049 8,230 3,854
20,577 5,057 42,767 Gain on sales of businesses - - - - - - Impairment charges - - - 1,582 - 1,582 Operations restructuring costs - - - 4,655 - 4,655
Total operating expenses 544,607 642,501 479,173
601,068 7,291 2,274,640 Operating income (loss) 28,465 30,464 (26,892 ) (28,367 ) (62,169 ) (58,499 ) Total interest expense 116,912 Loss before income taxes (175,411 ) Benefit from income taxes (9,814 ) Net loss$ (165,597 ) (In thousands) Year ended December 31, 2018 Corporate/ Ascent TM Ascent OD LTL TL Eliminations Total Net (loss) income$ 28,226 $ 30,464 $ (27,009 ) $ (28,682 ) $ (168,596 ) $ (165,597 ) Plus: Total interest expense 108 - 117 315 116,372 116,912 Plus: (Benefit from) provision for income taxes 131 - - - (9,945 ) (9,814 ) Plus: Depreciation and amortization 5,049 8,230 3,854 20,577 5,057 42,767 Plus: Fleet impairment charges - - - 1,582 - 1,582 Plus: Long-term incentive compensation expenses - - - - 2,696 2,696 Plus: Corporate restructuring and restatement costs - - - - 22,224 22,224 Plus: Operations restructuring costs - - - 4,655 - 4,655 Plus: Contingent purchase obligation - - - - 1,840 1,840 Adjusted EBITDA$ 33,514 $ 38,694 $ (23,038 ) $ (1,553 ) $ (30,352 ) $ 17,265 43
-------------------------------------------------------------------------------- (In thousands)
Year ended
Ascent TM Ascent OD LTL TL Corporate/Eliminations Total Revenues
$ 570,223 $ 548,059 $ 463,519 $ 553,184 $ (43,694 )$ 2,091,291
Operating expenses: Purchased transportation costs 418,170 468,749 331,177 255,969
(8,247 ) 1,465,818
Personnel and related benefits 58,196 33,275 70,521 117,306 17,627 296,925
Other operating expenses 60,997 16,418 83,851 178,002 19,023 358,291
Depreciation and amortization 5,965 7,985 4,353 17,550 1,894 37,747
Gain on sales of businesses - - - - (35,440 ) (35,440 )
Impairment charges 4,402 - - - - 4,402
Operations restructuring costs - - - - - -
Total operating expenses 547,730 526,427 489,902 568,827 (5,143 ) 2,127,743
Operating income (loss) 22,493 21,632 (26,383 ) (15,643 ) (38,551 ) (36,452 )
Total interest expense 64,049
Loss on early extinguishment of debt 15,876
Loss before income taxes (116,377 )
Benefit from income taxes (25,191 )
Net loss $ (91,186 )
(In thousands) Year ended December 31, 2017
Total w/o
Ascent TM Ascent OD LTL TL Corporate/Eliminations Total Less: Unitrans Unitrans
Net (loss) income $ 22,350 $ 21,632 $ (26,578 ) $ (15,599 ) $ (92,991 ) $ (91,186 ) $ 3,497 $ (94,683 )
Plus: Total interest
expense 143 - 195 (44 ) 63,755 64,049 - 64,049
Plus: Benefit from
income taxes - - - - (25,191 ) (25,191 ) 2,295 (27,486 )
Plus: Depreciation and
amortization 5,965 7,985 4,353 17,550 1,894 37,747 819 36,928
Plus: Impairment
charges 4,402 - - - - 4,402 - 4,402
Plus: Long-term
incentive compensation
expenses - - - - 2,450 2,450 - 2,450
Less: Gain on sale of
Unitrans - - - - (35,440 ) (35,440 ) - (35,440 )
Plus: Loss on debt
extinguishments - - - - 15,876 15,876 - 15,876
Plus: Corporate restructuring and restatement costs - - - - 32,321 32,321 -
32,321
Adjusted EBITDA (1)$ 32,860 $ 29,617 $ (22,030 ) $ 1,907 $ (37,326 )$ 5,028 $ 6,611$ (1,583 )
(1) Adjusted EBITDA for the Ascent TM segment for the year ended
44
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A summary of operating statistics for our LTL segment for the years ended
2019 2018 % Change
Revenue $ 430,806 $ 452,281 (4.7 %)
Less: Backhaul Revenue (3,126) (7,336 )
Less: Eliminations 508 -
Adjusted Revenue(1) $ 428,188 $ 444,945 (3.8 %)
Adjusted Revenue excluding fuel(1) $ 376,648 $ 390,224 (3.5 %)
Adjusted Revenue per hundredweight (incl. fuel)
0.4 % Adjusted Revenue per hundredweight (excl. fuel)$ 18.83 $ 18.71 0.6 % Adjusted Revenue per shipment (incl. fuel)$ 246.56 $ 243.69 1.2 % Adjusted Revenue per shipment (excl. fuel)$ 216.88 $ 213.74 1.5 % Weight per shipment (lbs.) 1,152 1,143 0.8 % Shipments per day 6,810 7,159 (4.9 %) (1) Our management uses Adjusted Revenue and Adjusted Revenue excluding fuel to calculate the above statistics as they believe it is a more useful measure to investors since backhaul revenue and eliminations are not included in our LTL standard pricing model which is based on weights and shipments. 45 -------------------------------------------------------------------------------- Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Consolidated Results Our consolidated revenues decreased to$1,847.9 million in 2019 compared to$2,216.1 million in 2018. Lower revenues in all segments contributed to the decrease. Our consolidated operating loss increased to$321.9 million in 2019 compared to$58.5 million in 2018. The 2019 operating loss included operations restructuring costs of$20.6 million related to our dry van truckload business and asset impairment charges of$197.1 million . The 2018 operating loss included operations restructuring costs of$4.7 million related to our temperature controlled business. Lower consolidated operating results in 2019 were attributable to decreased revenues, increased impairment charges and restructuring costs, partially offset by lower purchased transportation costs, other operating expenses, and gain on sale of businesses. Our consolidated net loss increased to$340.9 million in 2019 compared to$165.6 million in 2018. In addition to the operating results within our segments and corporate, our net loss reflected a decrease in interest expense to$20.4 million in 2019 from$116.9 million in 2018 due to the absence of interest on the preferred stock (which was fully redeemed in the first quarter of 2019 after completion of the rights offering). Income tax benefit was$3.7 million in 2019 compared to$9.8 million in 2018. The effective tax rate was 1.1% in 2019 and 5.6% in 2018. The effective tax rate varies from the federal statutory rate of 21.0% primarily due to adjustments for permanent differences, state income taxes (net of federal tax effect), and the change in valuation allowance for deferred tax assets. Significant permanent differences for 2019 included non-deductible goodwill impairment charges and a basis difference related to the sale of our Intermodal business. Significant permanent differences for 2018 included the non-deductible interest expense associated with our preferred stock. The rest of our discussion will focus on the operating results of our four segments: Ascent TM Operating results declined in our Ascent TM segment to an operating loss of$58.0 million in 2019 as compared to operating income of$28.5 million in 2018. Ascent TM revenues decreased$67.3 million in 2019 compared to 2018 due to lower revenues from domestic freight management, partially offset by increases in retail consolidation. Ascent TM personnel and related benefits increased slightly by$3.7 million primarily due to increased wages in retail consolidation and international. Other operating expenses decreased$1.1 million primarily due to lower commissions, fuel, partially offset by increased bad debt expense and repairs and maintenance expense. The Ascent TM segment also recorded$74.6 million in non-cash charges for goodwill impairment. Ascent OD Operating results in our Ascent OD segment declined to operating income of$4.5 million in the year ended 2019 compared to operating income of$30.5 million in the year ended 2018. Ascent OD revenues decreased$207.5 million and purchased transportation decreased$176.8 million primarily attributable to lower market demand for both air and ground expedite, which negatively impacted volumes and rates. Ascent OD revenues were approximately$40.1 million lower due to the impact of the strike at a customer,GM , which began inmid-September 2019 and continued into lateOctober 2019 . Ascent OD personnel and related benefits decreased$1.7 million , while other operating expenses decreased$3.4 million . Less-than-Truckload Operating results in our LTL segment declined to an operating loss of$35.6 million in 2019 compared to an operating loss of$26.9 million in 2018. LTL revenues decreased$21.5 million due to lower shipping volumes driven by a targeted reduction in service areas, focused on the elimination of unprofitable freight, partially offset by higher rates. Purchased transportation costs decreased$20.4 million , which were driven by a decrease in shipping volumes, partially offset by market conditions resulting in rate increases from purchased power providers and higher spot prices paid to brokers which negatively impacted linehaul expense. LTL personnel and related benefits increased$3.4 million while other operating expenses increased$1.5 million primarily due to increases in bad debt expense. Truckload Operating results in our TL segment declined to operating loss of$173.0 million in 2019 compared to an operating loss of$28.4 million in 2018. TL operating results for 2019 included a goodwill impairment charge of$92.9 million , an intangible asset impairment of$9.1 million , and a property and equipment impairment charge of$5.3 million , primarily related to rolling stock equipment, as well as operations restructuring costs of$20.6 million related to fleet reductions, terminal closings, and severance costs at our dry van business. Operating results in 2018 included the restructuring of our temperature controlled truckload business, which resulted in operations restructuring costs of$4.7 million related to fleet reductions and severance costs, as well as an asset 46 -------------------------------------------------------------------------------- impairment charge of$1.6 million related to tractors that were classified as "held for sale." Revenues and purchased transportation declined$97.6 million and$40.9 million , respectively, primarily attributable to declines in our dry van and intermodal businesses. TL personnel and related benefits decreased$14.9 million and other operating expenses decreased$31.8 million due to downsizing of our dry van truckload business in 2019, the sale of Intermodal and Flatbed during the fourth quarter of 2019, and the restructuring of our temperature controlled business in 2018. Other Operating Expenses Other operating expenses that were not allocated to our Ascent TM, Ascent OD, LTL and TL segments increased to$33.5 million in 2019 compared to$30.7 million in 2018. Higher insurance claims and professional fees were partially offset by reduced restructuring and restatement costs. Restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, andSEC and accounting compliance were$13.7 million and$22.2 million in 2019 and 2018, respectively. 47 -------------------------------------------------------------------------------- Year EndedDecember 31, 2018 Compared to Year EndedDecember 31, 2017 Consolidated Results Our consolidated revenues increased to$2,216.1 million in 2018 compared to$2,091.3 million in 2017. Higher revenues in the TL and Ascent TM segments contributed to the increase, which were partially offset by lower revenue in the LTL segment. Unitrans contributed revenue of$67.6 million to the Ascent TM segment in 2017. Our consolidated operating loss increased to$58.5 million in 2018 compared to$36.5 million in 2017. The operating loss in 2018 included operations restructuring costs of$4.7 million related to the restructuring of our temperature-controlled truckload business and asset impairment charges of$1.6 million . The operating loss in 2017 included a$35.4 million gain on the sale of Unitrans and goodwill impairment charges of$4.4 million . Lower consolidated operating results in 2018 were attributable higher corporate expenses and lower results in our TL and LTL segments, partially offset by an improvement in operating results within our Ascent TM segment. Unitrans contributed operating income of$5.8 million to the Ascent TM segment in 2017. Our consolidated net loss was$165.6 million in 2018 compared to$91.2 million in 2017. In addition to the operating results within our segments and corporate, our net loss was impacted by higher interest expense of$52.9 million , partially offset by the absence of a loss from debt extinguishment of$15.9 million in 2017. Interest expense increased to$116.9 million in 2018 from$64.0 million in 2017 due to higher interest expense from our preferred stock, partially offset by lower interest expense on debt attributable to a lower principal balance. Included in interest expense from preferred stock was higher expense of$86.2 million due to the change in the fair value of the preferred stock, partially offset by$15.0 million of lower interest expense from preferred stock issuance costs. Income tax benefit was$9.8 million in 2018 compared to$25.2 million in 2017. The effective tax rate was 5.6% in 2018 and 21.6% in 2017. The annual effective income tax rate varies from the federal statutory rate of 21.0% and 35.0%, respectively, primarily due to state income taxes (net of federal tax effect), adjustments for permanent differences (primarily the non-deductible interest expense associated with our preferred stock), and adjustments to the valuation allowance. Additionally, for 2017, our income tax benefit and effective tax rate were impacted by a basis difference related to the sale of Unitrans, a one-time tax benefit recorded as a result of recalculating the carrying value of our deferred tax assets and liabilities to reflect the reduced 21%U.S. federal corporate tax rate effectiveJanuary 1, 2018 pursuant to the Tax Reform Act, and non-deductible goodwill impairment charges. The rest of our discussion will focus on the operating results of our four segments: Ascent TM Operating results improved in our Ascent TM segment as operating income was$28.5 million in 2018 compared to$22.5 million in 2017. Operating results in 2017 included$5.8 million of operating income from Unitrans which was sold in the third quarter of 2017 and a goodwill impairment charge of$4.4 million which resulted from comparing the carrying value of the Domestic and International Logistics reporting unit to fair value after the sale of Unitrans. Excluding Unitrans and the impact of the goodwill impairment charge, improved Ascent TM operating results were driven by growth in our retail consolidation business and our domestic freight management business, partially offset by a slight decline in international freight forwarding. Ascent TM revenues increased$2.8 million in 2018 compared to 2017 due to higher revenue from domestic freight management (truckload and LTL brokerage) and retail consolidation (growth from existing and new customers). Included in Ascent TM revenue in 2017 was$67.6 million of revenue from Unitrans. Ascent TM personnel and related benefits decreased$5.9 million primarily due to the absence of Unitrans in 2018. Excluding the impact of Unitrans, personnel and related benefits increased$3.9 million . Other operating expenses increased$5.2 million primarily due to increased IT costs of$4.1 million and higher commissions of$2.2 million , partially offset by lower bad debt expense of$1.8 million . Ascent OD Operating results in our Ascent OD segment improved to operating income of$30.5 million in 2018 compared to$21.6 million in 2017. Ascent OD revenues increased$124.9 million while purchased transportation costs increased$104.7 million . Ascent OD revenues and purchased transportation costs were higher due primarily to increased ground and air expedited freight and related brokerage coupled with a strong demand environment which drove higher rates. Ascent OD personnel and related benefits increased$4.1 million due primarily to higher wages, while other operating expenses increased$7.0 million primarily due to higher temporary labor charges. Less-than-Truckload Operating results in our LTL segment declined slightly to an operating loss of$26.9 million in 2018 compared to an operating loss of$26.4 million in 2017. LTL revenues decreased$11.2 million due to a decrease in shipping volumes and a reduction in selected service areas in order to eliminate unprofitable freight and focus on key lanes, partially offset by higher rates and fuel surcharge 48 -------------------------------------------------------------------------------- revenue. Purchased transportation costs decreased$8.2 million , which were driven by a decrease in shipping volumes, partially offset by market conditions resulting in rate increases from purchase power providers and higher spot prices paid to brokers which negatively impacted linehaul expense. LTL personnel and related benefits were flat year over year while other operating expenses decreased$2.1 million primarily due to lower cargo claims and bad debt expense, partially offset by increased equipment lease costs. Truckload Operating results in our TL segment declined to an operating loss of$28.4 million in 2018 compared to an operating loss of 15.6 million in 2017. TL revenues increased$19.5 million while purchased transportation costs were essentially flat. TL revenues were higher due primarily to increased ground expedited freight coupled with a strong demand environment which drove higher rates across most of the segment. Purchased transportation costs and yield were negatively impacted by capacity reductions in intermodal services and over-the-road operations, including dry van and temperature controlled. Operating results in 2018 included the restructuring of our temperature-controlled truckload business, which resulted in operations restructuring costs of$4.7 million related to fleet and facilities right-sizing and relocation costs, severance costs, and the write-down of assets to fair market value. Also included in TL operating results for 2018 was an asset impairment charge of$1.6 million related to tractors that were classified as "held for sale." TL personnel and related benefits increased$5.9 million due primarily to higher driver wages, while other operating expenses increased$22.0 million , primarily due to increased equipment lease and maintenance costs of$7.0 million , the previously mentioned operations restructuring costs of$4.7 million , insurance related expenses of$1.8 million , fuel costs of$4.0 million and IT costs of$2.5 million . Other Operating Expenses Other operating expenses that were not allocated to our Ascent TM, Ascent OD, TL or LTL segments increased to$30.7 million in 2018 compared to$19.0 million in 2017, primarily due to a$35.4 million gain on the sale of Unitrans in September of 2017. Also included in other operating expenses are corporate restructuring and restatement costs associated with legal, consulting and accounting matters, including internal and external investigations, andSEC and accounting compliance of$22.2 million and$32.3 million in 2018 and 2017, respectively. Also impacting 2018 were lower insurance claims reserves of$7.6 million and lower legal settlements of$5.2 million . 49 -------------------------------------------------------------------------------- Liquidity and Capital Resources Our primary sources of cash have been borrowings under our credit facilities, proceeds from divestitures, issuance of preferred stock, and cash flows from operations. Our primary cash needs are and have been to fund operating losses and normal working capital requirements, repay our indebtedness and finance capital expenditures. As ofDecember 31, 2019 , we had$4.8 million in cash and cash equivalents,$34.8 million of adjusted excess availability under the ABL Credit Facility, and the ability to request, subject to approval byElliott , additional financing up to$59.5 million under the Third Lien Credit Facility as discussed below. We have taken a number of actions to continue to support our operations and meet our obligations in light of the incurred losses and negative cash flows experienced over the past several years. InFebruary 2019 , we entered into a$200 million ABL Credit Facility and entered into a$61.1 million Term Loan Credit Facility, both maturing onFebruary 28, 2024 . InAugust 2019 , we entered into aFee Letter with entities affiliated withElliott to arrange for Letters of Credit in an aggregate Face Amount of$20 million to support our obligations under the ABL Credit Facility. The Face Amount was subsequently increased to$30 million later inAugust 2019 . InSeptember 2019 , we issued Revolving Notes to entities affiliated withElliott . Pursuant to the Revolving Notes, we may borrow from time to time up to$20 million fromElliott on a revolving basis. OnOctober 21, 2019 , we entered into the Second Fee Letter Amendment withElliott with respect to the Fee Letter to increase the Face Amount from$30 million to$45 million . OnNovember 5, 2019 , we entered into amendments to the ABL Credit Facility and the Term Loan Credit Facility which enabled us to enter into the Third Lien Credit Facility withElliott Associates, L.P. andElliott International , L.P, as Lenders, andU.S. Bank National Association , as Administrative Agent. The Third Lien Credit Facility allows us to request, subject to approval by the Lenders, additional financing up to$100 million and matures onAugust 24, 2026 . We used the initial$20 million Term Loan Commitment under the Third Lien Credit Facility to refinance our Revolving Notes. These financing transactions are discussed in further detail later in this section. OnNovember 5, 2019 , we completed the sale of Intermodal to Universal Logistics Holdings, Inc. for$51.25 million in cash, subject to customary purchase price and working capital adjustments. OnDecember 9, 2019 , we completed the sale of Flatbed for$30.0 million in cash, subject to customary purchase price and working capital adjustments. OnJanuary 28, 2020 , we entered into a definitive agreement to sell our subsidiaryPrime Distribution Services, Inc. to C.H. Robinson Worldwide, Inc. for$225 million , subject to customary purchase price and working capital adjustments. We closed the transaction onMarch 2, 2020 and repaid in full and terminated the ABL Credit and Term Loan Credit Facilities that originated in February of 2019. OnMarch 2, 2020 , we and our direct and indirect domestic subsidiaries entered into a new credit agreement withBMO Harris Bank . We have implemented or are in the process of implementing cost reductions and taken other actions including; headcount reductions, voluntary delisting and deregistration with theSEC , business restructuring, and sales of operating companies and other assets, to reduce our liquidity needs. We expect to utilize the financing available under the Third Lien Credit Facility and the new ABL Credit Facility, subject to approval by the Lenders, avail ourselves of the available tax benefits of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and take further actions such as additional headcount reductions and other cost cutting measures, to satisfy our liquidity needs. We believe that these actions are probable of occurring and mitigate the liquidity risk raised by our historical operating results and will satisfy our estimated liquidity needs during the next 12 months from the date of the issuance of the consolidated financial statements. If we continue to experience operating losses in excess of the additional liquidity generated through the actions described above or through some combination of other actions, while not expected, then our liquidity needs may exceed availability and we might need to secure additional sources of funds, which may or may not be available. Additionally, a failure to generate additional liquidity could negatively impact our ability to perform the services important to the operation of our business. Rights Offering and Preferred Stock OnFebruary 26, 2019 , we closed our$450 million rights offering, pursuant to which we issued and sold an aggregate of 36 million new shares of our common stock at the subscription price of$12.50 per share. An aggregate of 7,107,049 shares of our common stock were purchased pursuant to the exercise of basic subscription rights and over-subscription rights from stockholders of record during the subscription period, including from the exercise of basic subscription rights by stockholders who are funds affiliated withElliott . In addition,Elliott purchased an aggregate of 28,892,951 additional shares pursuant to the commitment from Elliott to purchase all unsubscribed shares of our common stock in the rights offering pursuant to the Standby Purchase Agreement that we entered into withElliott datedNovember 8, 2018 , as amended. Overall,Elliott purchased a total of 33,745,308 shares of our common stock in the rights offering between its basic subscription rights and the backstop commitment, and following the closing of the rights offering beneficially owned approximately 90.4% of our common stock. 50 -------------------------------------------------------------------------------- The net proceeds from the rights offering and backstop commitment were used to fully redeem the outstanding shares of our preferred stock and to pay related accrued and unpaid dividends. Proceeds were also used to pay fees and expenses in connection with the rights offering and backstop commitment. We retained in excess of$30 million of funds to be used for general corporate purposes. The purpose of the rights offering was to improve and simplify our capital structure in a manner that gave our existing stockholders the opportunity to participate on a pro rata basis. The preferred stock was mandatorily redeemable and, as such, was presented as a liability on the consolidated balance sheets. At each preferred stock dividend payment date, we had the option to pay the accrued dividends in cash or to defer them. Deferred dividends earned dividend income consistent with the underlying shares of preferred stock. We elected to measure the value of the preferred stock using the fair value method. Under the fair value method, issuance costs were expensed as incurred. The fair value of the preferred stock increased by$104.6 million during the year ended 2018, which was reflected in interest expense - preferred stock. Certain Terms of the Preferred Stock as ofDecember 31, 2018 Series B Series C Series D Series E Series E-1 Shares at$0.01 Par Value at Issuance 155,000 55,000 100 90,000 35,728 Shares Outstanding at December 31, 2018 155,000 55,000 100 37,500 35,728 Price / Share$1,000 $1,000 $1.00 $1,000 $1,000 /$960 Dividend Rate Adjusted Adjusted Right to Adjusted Adjusted LIBOR + 3.00% LIBOR + 3.00% participate LIBOR + 5.25% LIBOR + 5.25% + Additional + Additional equally and + Additional + Additional Rate Rate ratably in Rate (8.50%). Rate (8.50%). (4.75-12.50%) (4.75-12.50%) all cash Additional Additional based on based on dividends 3.00% upon 3.00% upon leverage. leverage. paid on certain certain Additional Additional common stock. triggering triggering 3.00% upon 3.00% upon events. events. certain certain triggering triggering events. events. Dividend Rate at December 17.780% 17.780% N/A 16.030% 16.030% 31, 2018 Redemption 8 Years 8 Years 8 Years 6 Years 6 Years Term Redemption From Closing 65% premium From Closing From
Closing
Rights Date: (subject to Date: Date:
12-24 months: stock 0-12 months: 0-12 months:
105% movement) 106.5% 106.5%
24-36 months: 12-24 months: 12-24 months:
103% 103.5% 103.5%
On March 1, 2018 , we entered into the Series E-1 Investment Agreement
with Elliott , pursuant to which we agreed to issue and sell to Elliott from time
to time until July 30, 2018 , an aggregate of up to 54,750 shares of Series E-1
Preferred Stock at a purchase price of $1,000 per share for the first 17,500
shares of Series E-1 Preferred Stock, $960 per share for the next 18,228 shares
of Series E-1 Preferred Stock, and $920 per share for the final 19,022 shares of
Series E-1 Preferred Stock. On March 1, 2018 , the parties held an initial
closing pursuant to which we issued and sold to Elliott 17,500 shares of Series
E-1 Preferred Stock for an aggregate purchase price of $17.5 million . The
proceeds of the sale of such shares of Series E-1 Preferred Stock were used to
provide working capital to support our current operations and future growth and
to repay a portion of the indebtedness under our prior ABL Facility as required
by the credit agreement governing that facility.
On April 24, 2018 , the parties held a closing pursuant to the Series E-1
Investment Agreement, pursuant to which we issued and sold to Elliott 18,228
shares of Series E-1 Preferred Stock for an aggregate purchase price of
approximately $17.5 million . The proceeds of the sale of such shares of Series
E-1 Preferred Stock were used to provide working capital to support our current
operations and future growth and to repay a portion of the indebtedness under
our prior ABL Facility as required by the credit agreement governing that
facility.
The final 19,022 shares of Series E-1 Preferred Stock remained unissued when the
Series E-1 Investment Agreement was terminated in connection with the closing of
the rights offering. The Company incurred $1.1 million of issuance costs
associated with the issuance of the Series E-1 Preferred Stock for the year
ended December 31, 2018 , which was reflected in interest expense - preferred
stock.
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On August 3, 2018 , September 19, 2018 , November 8, 2018 , and January 9, 2019 , we
entered into amendments to the Series E-1 Investment Agreement, which, among
other things, (i) extended the termination date thereunder from July 30, 2018 to
March 2, 2019 for the remaining 19,022 shares available to issue and sell to
Elliott for $17.5 million , and (ii) provided that if the Series E-1 Investment
Agreement was not already terminated, the Series E-1 Investment Agreement would
automatically terminate upon the Rights Offering Effective Date (as defined in
our prior ABL Facility). Upon the closing of the rights offering described
elsewhere in this Form 10-K, the Series E-1 Investment Agreement was
automatically terminated.
Credit Facilities
ABL Credit Facility
On February 28, 2019 , we and our direct and indirect domestic subsidiaries
entered into the ABL Credit Facility. The ABL Credit Facility consists of a
$200.0 million asset-based revolving line of credit, of which up to (i) $15.0
million may be used for FILO Loans (as defined in the ABL Credit Facility),
(ii) $20.0 million may be used for Swing Line Loans (as defined in the ABL
Credit Facility), and (iii) $30.0 million may be used for letters of credit. The
ABL Credit Facility provides that the revolving line of credit may be increased
by up to an additional $100.0 million under certain circumstances. We initially
borrowed $91.5 million under the ABL Credit Facility and used the initial
proceeds for working capital purposes and to repay our prior ABL Facility. The
ABL Credit Facility matures on February 28, 2024 . We had adjusted excess
availability under the ABL Credit Facility of $34.8 million as of December 31,
2019 .
On August 2, 2019 , we and our direct and indirect domestic subsidiaries entered
into the ABL Facility Amendment. Pursuant to the ABL Facility Amendment, the ABL
Credit Facility was amended to, among other things, add Acceptable Letters of
Credit (as defined in the ABL Facility Amendment) to the Borrowing Base (as
defined in the ABL Credit Facility as amended by the ABL Facility Amendment).
On September 17, 2019 , we and our direct and indirect domestic subsidiaries
entered into the Second ABL Facility Amendment effective as of September 13,
2019 . Pursuant to the Second ABL Facility Amendment, the ABL Credit Facility was
amended to, among other things, (i) extend the deadline for providing a
reasonably detailed plan for achieving our stated liquidity goals and objectives
in connection with our go-forward business plan and strategy, and (ii) eliminate
one of the exceptions to the limitation on Dispositions (as defined the ABL
Credit Facility).
On October 21, 2019 , we and our direct and indirect domestic subsidiaries
entered into the Third ABL Facility Amendment. Pursuant to the Third ABL
Facility Amendment, the ABL Credit Facility was amended to, among other things,
(i) increase the amount of Acceptable Letters of Credit that can be added to the
Borrowing Base from $30 million to $45 million , (ii) increase the Applicable
Margin by 100 basis points, (iii) permit certain Specified Dispositions provided
that the Net Cash Proceeds are used to pay down the Revolving Credit Facility or
the Term Loan Obligations as specified, (iv) increase the Availability Block
from the Specified Dispositions, (v) extend the applicable date for the Fixed
Charge Trigger Period from October 31, 2019 to March 31, 2020 , and (vi) add
baskets for additional permitted Indebtedness consisting of Junior Lien Debt or
unsecured Indebtedness in an aggregate amount not to exceed $100 million
provided that, among other things, such Junior Lien Debt or unsecured
Indebtedness has a maturity date that is at least 180 days after February 28,
2024 .
On November 27, 2019 , we and our direct and indirect domestic subsidiaries
entered into the Fourth ABL Facility Amendment. Pursuant to the Fourth ABL
Facility Amendment, the ABL Credit Facility was amended to, among other things,
(i) revise certain schedules, and (ii) waive the Specified Defaults that arose
from the failure to previously update a schedule of aircraft owned by the Loan
Parties (as defined in the ABL Credit Facility).
On March 2, 2020 , we and our direct and indirect domestic subsidiaries entered
into an amended and restated credit agreement (the "new ABL Credit Agreement")
with BMO Harris Bank N.A ., as Administrative Agent, Lender, Letter of Credit
Issuer and Swing Line Lender (the "new ABL Credit Facility"). The new ABL Credit
Facility consists of a $50.0 million asset-based revolving line of credit, of
which up to (i) $1.0 million may be used for Swing Line Loans (as defined in the
new ABL Credit Agreement), and (ii) $13.0 million may be used for letters of
credit. The new ABL Credit Facility matures on April 1, 2021 . Advances under the
new ABL Credit Facility bear interest at either: (a) the LIBOR Rate (as defined
in the new ABL Credit Agreement), plus an applicable margin of 4.00%; or (b) the
Base Rate (as defined in the new ABL Credit Agreement), plus an applicable
margin of 3.00%. The Company's ability to borrow under the new ABL Credit
Facility is reduced by credit availability blocks, currently in the amount of
$18.5 million , and the amount of outstanding letters of credit, approximately
$13 million . As of March 30, 2020 , the Company has $18.5 million available under
the new ABL Credit Facility.
Term Loan Credit Facility
On February 28, 2019 , we and our direct and indirect domestic subsidiaries
entered into the Term Loan Credit Facility. The Term Loan Credit Facility
consists of an approximately $61.1 million term loan facility, consisting of (i)
approximately $40.3 million of Tranche A Term Loans (as defined in the Term Loan
Credit Facility), (ii) approximately $2.5 million of Tranche A FILO Term
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Loans (as defined in the Term Loan Credit Facility), (iii) approximately $8.3
million of Tranche B Term Loans (as defined in the Term Loan Credit Facility),
and (iv) a $10.0 million asset-based facility available to finance future
capital expenditures. We initially borrowed $51.1 million under the Term Loan
Credit Facility and used the proceeds for working capital purposes and to repay
our prior ABL Facility. The Term Loan Credit Facility matures on February 28,
2024 .
On August 2, 2019 , we and our direct and indirect domestic subsidiaries entered
into the Term Loan Facility Amendment. Pursuant to the Term Loan Facility
Amendment, the Term Loan Credit Facility was amended to, among other things: (i)
defer the September 1, 2019 quarterly amortization payments otherwise due
thereunder to December 1, 2019 , and (ii) provide that CapX Loans (as defined in
the Term Loan Credit Facility) shall not be available during the period
commencing on August 2, 2019 and continuing until payment of the December 1,
2019 quarterly amortization payments.
On September 17, 2019 , we and our direct and indirect domestic subsidiaries
entered into the Second Term Loan Facility Amendment effective as of September
13, 2019 . Pursuant to the Second Term Loan Facility Amendment, the Term Loan
Credit Facility was amended to, among other things, (i) add a requirement to
deliver a reasonably detailed plan for achieving our stated liquidity goals and
objectives in connection with our go-forward business plan and strategy, and
(ii) eliminate one of the exceptions to the limitation on Dispositions (as
defined the Term Loan Credit Facility).
On October 21, 2019 , we and our direct and indirect domestic subsidiaries
entered into the Third Term Loan Facility Amendment. Pursuant to the Third Term
Loan Facility Amendment, the Term Loan Credit Facility was amended to, among
other things, (i) permit certain Specified Dispositions, (ii) eliminate our
ability to request new CapX Loans, and (iii) add baskets for additional
permitted Indebtedness consisting of Junior Lien Debt or unsecured Indebtedness
in an aggregate amount not to exceed $100 million provided that, among other
things, such Junior Lien Debt or unsecured Indebtedness has a maturity date that
is at least 180 days after February 28, 2024 .
On November 27, 2019 , we entered into the Fourth Term Loan Facility
Amendment. Pursuant to the Fourth Term Loan Facility Amendment, the Term Loan
Credit Facility was amended to, among other things, (i) revise certain schedules
and (ii) waive the Specific defaults that arose from the failure to previously
update a schedule of Aircraft owned by the Loan parties (as defined in the Term
Loan Credit Facility).
The Term Loan Facility was paid in full and terminated on March 2, 2020 .
Fee Letter
On August 2, 2019 , we entered into the Fee Letter. Pursuant to the Fee Letter,
Elliott agreed to arrange for Letters of Credit in an aggregate face amount of
$20 million to support our obligations under our ABL Credit Facility. As
consideration for Elliott providing the Letters of Credit, we agreed to (i) pay
Elliott a fee on the LC Amount, accruing from the date of issuance through the
date of expiration (or if drawn, the date of reimbursement by us of the LC
Amount to Elliott ), at a rate equal to the LIBOR Rate (as defined in the ABL
Credit Facility) plus 7.50%, which will be payable in kind by adding the amount
then due to the then outstanding LC Amount, and (ii) reimburse Elliott for any
draw on the Letters of Credit, including the amount of such draw and any taxes,
fees, charges, or other costs or expenses reasonably incurred by Elliot in
connection with such draw, promptly after receipt of notice of any such drawing
under the Letters of Credit, in each case subject to the terms and conditions of
the Fee Letter.
On August 20, 2019 , we entered into a First Amendment to the Fee Letter,
pursuant to which the maximum face amount of the Letters of Credit (as defined
in the Fee Letter Amendment) that may be used to support our obligations under
the ABL Credit Facility was increased from $20 million to $30 million .
On October 21, 2019 , we entered into the Second Fee Letter Amendment. Pursuant
to the Second Fee Letter Amendment, the Fee Letter was amended to, among other
things, increase the maximum face amount of the Letters of Credit (as defined in
the Fee Letter Amendment) that may be used to support our obligations under the
ABL Credit Facility from $30 million to $45 million .
Revolving Notes
On September 20, 2019 , we issued Revolving Notes to entities affiliated with
Elliott . Pursuant to the Revolving Notes, we may borrow from time to time up to
$20 million from Elliott on a revolving basis. Interest on any advances under
the Revolving Notes will bear interest at a rate equal to the LIBOR Rate (as
defined therein) plus 7.50%, and interest shall be payable on a quarterly basis
beginning on December 1, 2019 . On November 5, 2019 , these notes were refinanced
as part of the Third Lien Credit Facility.
Third Lien Credit Facility
On November 5, 2019 , we entered into the Third Lien Credit Facility with U.S.
Bank National Association , as the Administrative Agent, and Elliott Associates,
L.P. and Elliott International , L.P, as Lenders. We used the initial $20 million
Term Loan Commitment (as defined in the Third Lien Credit Agreement) under the
Third Lien Credit Facility to refinance its $20 million principal amount
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of unsecured debt to the Lenders. The Company has $40.5 million of outstanding
borrowings under this facility as of December 31, 2019 .
The loans under the Third Lien Credit Facility bear interest at either: (a) the
LIBOR rate (as defined in the Third Lien Credit Agreement), plus an applicable
margin of 7.50%; or (b) the Base Rate (as defined in the Third Lien Credit
Agreement), plus an applicable margin of 6.50%. Interest under the Third Lien
Credit Facility shall be paid in kind by adding such interest to the principal
amount of the applicable Term Loans on the applicable Interest Payment Date;
provided that to the extent permitted by the ABL Loan Agreement, the Senior Term
Loan Credit Agreement and the Intercreditor Agreement, we may elect that all or
a portion of interest due on an Interest Payment Date shall be paid in cash by
providing written notice to the Administrative Agent at least five Business Days
prior to the applicable Interest Payment Date specifying the amount of interest
to be paid in cash. The Third Lien Credit Facility matures on August 26, 2024 .
The obligations under the Third Lien Credit Agreement are guaranteed by each of
our domestic subsidiaries pursuant to a guaranty included in the Third Lien
Credit Agreement. As security for our obligations under the Third Lien Credit
Agreement, we have granted a third priority lien on substantially all of our
assets (including their equipment (including, without limitation, rolling stock,
aircraft, aircraft engines and aircraft parts)) and proceeds and accounts
related thereto, and substantially all of our other tangible and intangible
personal property, including the capital stock of certain of our direct and
indirect subsidiaries.
The Third Lien Credit Agreement contains negative covenants limiting, among
other things, additional indebtedness, transactions with affiliates, additional
liens, sales of assets, dividends, investments and advances, prepayments of
debt, mergers and acquisitions, and other matters customarily restricted in such
agreements. The Third Lien Credit Agreement also contains customary events of
default, including payment defaults, breaches of representations and warranties,
covenant defaults, events of bankruptcy and insolvency, failure of any guaranty
or security document supporting the Third Lien Credit Agreement to be in full
force and effect, and a change of control.
See Note 6, "Debt" and Note 7, "Preferred Stock" to our consolidated financial
statements in this Form 10-K for additional information regarding the ABL and
Term Loan Credit Facilities, the Fee Letter, the Revolving Credit Notes, and
preferred stock, respectively.
We do not believe that the limitations imposed by the terms of our debt
agreements have any significant impact on our liquidity, financial condition, or
results of operations. We believe that these resources will be sufficient to
meet our working capital, debt service, and capital investment obligations for
the foreseeable future.
Prior ABL Facility
Our prior ABL Facility consisted of a:
• $200.0 million asset-based revolving line of credit, of which $20.0 million may be used for swing line loans and
letters of credit;
•
•
expenditures, which was subsequently terminated before utilized.
As previously mentioned, our prior ABL Facility was paid off with the proceeds from the ABL Credit Facility and the Term Loan Credit Facility. Trading of the Company's common stock on theNew York Stock Exchange OnOctober 4, 2018 , we received a notice from the NYSE that we had fallen below the NYSE's continued listing standards relating to minimum average global market capitalization and total stockholders' investment, which require that either our average global market capitalization be not less than$50 million over a consecutive 30 trading day period, or our total stockholders' investment be not less than$50 million . Pursuant to the NYSE continued listing standards, we timely notified the NYSE that we intended to submit a plan to the NYSE demonstrating how we intended to regain compliance with the continued listing standards within the required 18-month time frame. We timely submitted our plan, which was subsequently accepted by the NYSE. During the 18-month cure period, our shares continued to be listed and traded on the NYSE, subject to our compliance with other listing standards. The NYSE notification did not affect our business operations or our reporting requirements with theSEC . OnOctober 12, 2018 , we received a notice from the NYSE that we had fallen below the NYSE's continued listing standard related to price criteria for common stock, which requires the average closing price of our common stock to equal at least$1.00 per share over a 30 consecutive trading day period. The NYSE notification did not affect our business operations or ourSEC reporting requirements. As a result of our 1-for- 25 Reverse Stock Split that took effect onApril 4, 2019 , we received a notice from the NYSE 54 -------------------------------------------------------------------------------- onApril 12, 2019 that a calculation of our average stock price for the 30-trading days endedApril 12, 2019 , indicated that our stock price was above the NYSE's minimum requirements of$1.00 based on a 30-trading day average. Accordingly, we are now in compliance with the$1.00 continued listed criterion. OnSeptember 10, 2019 , we received a notice from the NYSE that we were back in compliance with the NYSE quantitative listing standards. This decision came as a result of our achievement of compliance with the NYSE's minimum market capitalization and stockholders' equity requirements over the prior two consecutive quarters. See Note 6, Debt, and Note 7, Preferred Stock, to our consolidated financial statements in this Form 10-K for additional information regarding our prior ABL Facility and preferred stock, respectively. We do not believe that the limitations imposed by the terms of our debt agreement have any significant impact on our liquidity, financial condition or results of operations. Cash Flows A summary of operating, investing, and financing activities are shown in the following table (in thousands): Year Ended December 31, 2019 2018 2017 Net cash (used in) provided by: Operating activities$ (97,075 ) $ 5,594 $ (45,552 ) Investing activities 60,905 (22,715 ) 77,631 Financing activities 29,768 2,598
(35,890 )
Net change in cash and cash equivalents
Cash Flows from Operating Activities Cash used in operating activities was$97.1 million during 2019. The difference between our$340.9 million net loss and the$97.1 million of cash used by operating activities was primary attributable to the impairment charge of$207.7 million and depreciation and amortization of$59.8 million . Cash provided by operating activities was$5.6 million during 2018. The difference between our$165.6 million net loss and the$5.6 million of cash provided by operating activities during 2018 was primarily attributable to the change in the fair value of our preferred stock of$104.6 million , and$43.5 million of depreciation and amortization expense, partially offset by a deferred tax benefit of$10.6 million . The remainder is primarily attributable to changes in working capital. Cash used in operating activities was$45.6 million in 2017. The difference between our$91.2 million net loss and the$45.6 million of cash used in operating activities during 2017 was primarily attributable to$38.9 million of depreciation and amortization expense, the change in the fair value of our preferred stock of$18.4 million , and an impairment charge of$4.4 million , partially offset by a deferred tax benefit of$27.1 million . The remainder is primarily attributable to changes in working capital. Cash Flows from Investing Activities Cash provided by investing activities was$60.9 million , primarily due to proceeds from sales of businesses of$84.8 million and building and equipment of$3.9 million . A majority of our 2019 capital expenditures were funded with finance leases as opposed to up-front cash. We expect to use approximately$20 million of cash in 2020 to fund capital expenditures of$20 to$25 million . Cash used in investing activities was$22.7 million during 2018, which reflects$25.5 million of capital expenditures used to support our operations. These capital expenditures were partially offset by the proceeds from the sale of equipment of$2.8 million . Cash provided by investing activities was$77.6 million in 2017, which reflects$88.5 million of proceeds from the sale of Unitrans, which was partially offset by$14.5 million of capital expenditures used to support our operations. These capital expenditures were partially offset by proceeds from the sale of equipment of$3.6 million . Cash Flows from Financing Activities Cash provided by financing activities was$29.8 million for the year ended 2019, primarily as a result of net proceeds from the issuance of common stock of$450.0 million , offset by the payment of preferred stock of$402.9 million . Cash provided by financing activities was$2.6 million during 2018, which primarily reflects the issuance of Series E-1 Preferred Stock of$35.0 million and net proceeds from insurance premium financing of$5.6 million , partially offset by a reduction in borrowings of$31.0 million and a reduction of our finance lease obligation of$5.5 million . Cash used in financing activities was$35.9 million during 2017, which primarily reflects issuance costs from debt and preferred stock of$20.8 million , debt extinguishment costs of$11.0 million , and a reduction of finance lease obligations of$3.7 million . 55 -------------------------------------------------------------------------------- 56 -------------------------------------------------------------------------------- Quarterly Results of Operations The following table presents unaudited consolidated statement of operations data for each of the four quarters endedDecember 31, 2019 and 2018. We believe that all necessary adjustments have been included to fairly present the quarterly information when read in conjunction with our annual consolidated financial statements and related notes. The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter. First Second Third Fourth (In thousands, except per share data) Quarter Quarter Quarter Quarter 2019: Total revenues$ 507,148 $ 480,688 $ 459,147 $ 400,879 Net revenues (total revenues less purchased transportation costs) 164,373 162,903 152,785 121,236 Total interest expense 3,882 4,632 5,480 6,418 Loss before income taxes (26,928 ) (142,473 ) (98,305 ) (76,891 ) Net loss available to common stockholders (26,999 ) (141,949 ) (97,751 ) (74,238 ) Loss per share: Basic$ (1.78 ) $ (3.77 ) $ (2.60 ) $ (1.97 ) Diluted$ (1.78 ) $ (3.77 ) $ (2.60 ) $ (1.97 ) 2018: Total revenues$ 569,984 $ 558,026 $ 536,584 $ 551,547 Net revenues (total revenues less purchased transportation costs) 169,021 177,954 170,906 179,845 Total interest expense 9,543 34,232 35,798 37,339 Loss before income taxes (22,973 ) (45,607 ) (46,619 ) (60,212 ) Net loss available to common stockholders (23,643 ) (41,955 ) (41,561 ) (58,438 ) Loss per share: Basic$ (15.37 ) $ (27.24 ) $ (26.99 ) $ (37.32 ) Diluted$ (15.37 ) $ (27.24 ) $ (26.99 ) $ (37.32 ) Our operating results for the first, second, third and fourth quarters of 2019 include asset impairment charges of$0.8 million ,$108.3 million ,$39.7 million and$48.3 million , respectively. Our operating results in the second quarter of 2018 include operations restructuring costs of$4.7 million . Our operating results in the fourth quarter of 2018 include asset impairment charges of$1.6 million . The above table reflects adjustment for the reverse stock split that occurred onApril 4, 2019 . Off-Balance Sheet Arrangements We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to materially affect our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support; engage in leasing, hedging, or research and development services; or have other relationships that expose us to liability that is not reflected in the financial statements. However, we provide a guarantee for a portion of the value of certain IC leased tractors. The potential maximum exposure under these lease guarantees was approximately$7.6 million as ofDecember 31, 2019 . Seasonality Our operations are subject to seasonal trends that have been common in the North American over-the-road freight sector for many years. Typically our results of operations for the quarter ending in March are on average lower than the quarters ending in June, September, and December. This pattern has been the result of factors such as inclement weather, national holidays, customer demand, and economic conditions. 57
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Effects of Inflation Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results as inflationary increases in fuel and labor costs have generally been offset through fuel surcharges and price increases.
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