Q4 2020 YRC Worldwide Inc Earnings Call

February 4, 2021

[music].

Good day and welcome to Yellow Corporation's fourth quarter 2020 earnings call all participants will be in listen only mode.

After todays presentation, there will be a question and answer session.

Please note this event is being recorded.

I would now like to turn the conference over to Tony Carreno, Vice President of Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone welcome to yellow Corporation's fourth quarter and full year 2020 earnings conference call.

Joining us on the call today are Darren Hawkins Chief Executive Officer.

Dan Olivia Air interim Chief Financial Officer, and T J O'connor Chief operating officer.

During this call we may make some forward looking statements within the meaning of federal Securities Law. These forward looking statements and all other statements that might be made on this call, which are not historical facts are subject to uncertainty and a number of risks and therefore actual results may differ materially the format of this call does not allow us to fully discuss all of these risk factors.

<unk> quite.

For a full discussion of the risk factors that could cause our results to differ please refer to this afternoon's earnings release.

And our most recent SEC filings, including our forms 10-K 10-Q. These.

These items are also available on our website at my yellow Dot com.

Additionally, please see today's release for a reconciliation of net loss to adjusted EBITDA.

Conjunction with today's earnings release, we issued a presentation, which may be referenced during the call. The presentation was filed in an 8-K, along with the earnings release and is available on our website.

I'll now turn the call over to Darren.

Thanks, Tony and good afternoon, everyone. Thank you for joining our call we're excited to announce that effective today.

Yellow Corporation. This is a name with a strong brand awareness that represents our proud history as the original American <unk> company.

Turning to Q4, adjusted EBITDA improved by $10 6 million compared to a year ago and operating income improved by $14 million excluding gains on property sales pricing continued to improve during the quarter and that trend has carried into 2021 for the month of January.

<unk>, the yellow companies averaged around plus or minus 6% on contract negotiations.

With the industrial and retail segments of the economy, improving a shortage of qualified drivers as keeping LDL capacity at a fairly consistent level. The driver shortage is an industry wide problem and we remained focused on recruiting and training additional drivers we will continue to make this a priority.

And you'll hear more about this from T J.

Despite the challenges the COVID-19 pandemic presented in 2020, we remained focused on our multi year enterprise transformation to optima has and structurally improve our network that includes more than 300 strategically located terminals throughout North America.

In Q4, we successfully implemented an intermodal change of operations in Memphis. This change allows for the movement of shipments on intermodal containers to and from our Western U S operations.

We kicked off 2021 by continuing our network optimization efforts with the integration of five legacy national terminals into operations at our regional terminal in January.

This allows us to now service markets in Louisville, Lexington, Evansville, Birmingham, and Demoing with one brand one operation, while providing customers with a broader network of yellow services. This change brings the number of facilities and us to 300.

In 2007, we have a number of additional integration slated throughout 2021 as we continue our path towards transforming the yellow network into a super regional operation when completed the enterprise transformation is expected to increase property.

And rolling stock asset utilization expand service offerings and leverage operational Flexibilities gained with our 2019 labor agreement.

The results will be to operate on one yellow technology platform as one yellow network and under one yellow brand that provides excellent service to our customers.

In January we drew $176 million from tranche B of our U S. Treasury commitment. These funds will be used to invest in our fleet and it is significant due to the positive impact it will have on age and efficiency of our tractors and trailers are drivers are also excited about the new role.

Net stock that we're onboarding.

We recently announced two additions to our board of directors, David Mcclimans, and Chris Salter Myer, Mr. Mccomb, and most recently ladder private consulting practice and has served in executive roles for industry, leading transportation companies.

Mr. <unk>. Most recently served as EVP of logistics and President CEO of Walmart Transportation LLC I am very pleased to welcome down to Yellows Board of directors with their impressive proven track records from both a shipper and carrier perspective.

<unk> yellow will benefit tremendously from their insight and leadership experience.

As we turn our focus to 2021, our key priorities include executing one of the largest fleet refreshes in our company's history and I'm excited by the Capex plan supporting the refresh we will be focused on meeting our customers' needs mitigating purchase transportation expense.

And hiring and training drivers. We also plan to continue executing the information technology phase and network optimization as part of our enterprise transformation.

I will now turn the call over to Dan who will share additional details about the quarter.

Thank you Darren and good afternoon, everyone for the full year 2020, operating revenue was $4 $5 1 billion compared to $4 87 billion in 2019.

Operating income in 2020 was $56 5 million, which included a $45 3 million net gain on property sales.

This compares to operating income of $16 $2 million in 2019, which included a $13 7 million net gain on property sales.

Adjusted EBITDA for full year, 2020 was $191 9 million compared to $210 6 million in 2019.

For the fourth quarter of 2020 operating revenue was $1 7 billion compared to $1 6 billion in 2019.

Operating income for the fourth quarter with $13 7 million compared to $9 8 million in the prior year, which included a $10 1 million net gain on property sales.

Adjusted EBITDA for the fourth quarter, 2020 was $57 9 million compared to $47 3 million in 2019.

Revenue for the fourth quarter reflected a two 4% increase in <unk> tonnage per day in <unk> weight per shipment was up two 5%.

Sequential LCL tonnage per day trends during the fourth quarter were as follows and these are compared to the prior year October up one 9% November up two 2% and December up three 2%.

On a preliminary basis January LCL tonnage per day was up between 2% and 3%.

Excluding fuel surcharge <unk> revenue per hundredweight was up two 2% and <unk> revenue per shipment was up four 8%.

Including fuel surcharge <unk> revenue per hundred weight was down 0.7% and <unk> revenue per shipment was up one 8%.

Total liquidity at the end of the fourth quarter with $440 million compared to $80 million at the end of 2019.

Total capital expenditures for the fourth quarter were $99 million compared to $32 million in the prior year.

Now for a brief update on the U S Treasury loans.

Related to the 300 million tranche a loan during the fourth quarter, the remaining $55 million available under tranchet was requested and funded.

So as of the end of 2020, all $300 million of tranche has been drawn $274 million of which has been used and we expect the remaining $26 million will be used during the first quarter of 2021.

Related to the 400 million tranche B loan as we mentioned on the third quarter earnings call. The first $75 million of tranche B was requested and funded in October.

$72 million, which was used to acquire more than 300 tractors and 200 trailers most of which was in the back half of the quarter.

As Darren mentioned, the next $176 million of tranche B was received during January.

So in total as of today, we have drawn $251 million and we expect to draw the remaining $149 million throughout the remainder of 2021.

With the incremental funding from tranche B, along with our strong liquidity position, we plan to significantly increase our capital expenditures in 2021 to a range of $450 million to $550 million.

In addition to tractors and trailers investments will include technology box truck containers lift gates and other assets.

During the first quarter alone, we expect to acquire approximately 1100 tractors 1900 trailers in 250 containers.

And finally, although we feel good about our performance in the fourth quarter and we feel optimistic about 2021, there are still from short term cost challenges to work through early in the year specifically.

Specifically as it pertains to elevated purchase transportation expenses caused by the shortage of qualified drivers.

As we continue to work through that challenge and place new equipment into service, we expect our year over year financial performance in 2021 to improve as the year progresses.

With that I will turn the call over to T. J.

Thank you Dan and good afternoon, everyone.

It is a very exciting time at yellow, we have the opportunity to implement one of the largest capital expenditure plans in our company's history.

This combined with the progress we are making on our multiyear enterprise transformation will further enhance our position in the marketplace.

As you heard from Darren the industry is experiencing a shortage of qualified drivers.

We have taken and are taking to hire drivers include implementing a signing bonus accelerating pay progressions in certain markets and expanding our driving academies.

We are increasing the number of driving schools and by the end of March we expect to have 12 academies in operation around the country.

We also look internally and see great potential in our current employees such as box truck drivers and dock workers, who are part of the yellow team, but not yet CDL qualified.

We will continue to look at opportunities to ensure we are prepared to meet the needs of our customers and have sufficient capacity.

In the fourth quarter salary wages and benefits decreased by $26 million compared to a year ago, which was largely impacted by fewer total hours worked and increase in purchase transportation expense of $50 million more than offset the favorable variance in salaries wages and benefits.

Roughly 45% of the increase in purchase transportation was due to rail from higher volume. In addition to growth at Henry logistics. The remaining increase in purchase transportation was primarily due to the use of expensive local cartage and over the road purchase transportation both of which were impacted.

<unk> by tighter capacity.

Moving forward, we will continue using rail where we can do to the cost efficiency and the positive impact on driver availability we.

We expect that by continuing to focus on hiring and training drivers that will help reduce cartage expense finally, as we purchase of tractors trailers and containers and our Capex plan, we expect to use fewer short term rentals and to see a decrease in leased equipment.

On a year over year basis, we anticipate higher purchase transportation expense will continue for the first couple of quarters in 2021.

The intermodal change of operations in Memphis was executed as planned in December and as an example of the coordinated steps we are taking as part of the enterprise transformation.

This month, we plan to add regional next day service to the mid Atlantic region through our National carrier. This follows a similar expansion implemented in the mid south and through Texas in 2020.

The Richmond expansion from ex legacy National and regional terminals in five states.

Customers will now have access to faster transit times and more streamline supply change, which is a blueprint for our Super Regional service.

We continue to work on the technology phase and the network optimization of our enterprise transformation.

The technology phase includes consolidating pickup and delivery.

Sales customer service line haul.

Human resources.

Maintenance.

And in cash safety to one platform when completed we will operate with one set of technologies refined to support a super regional model.

In closing I would like to thank our dedicated and safety minded professionals at yellow.

Even in the face of the pandemic the challenge supply chains across North America in 2020, we had improvement in both injury and accident performance I sincerely appreciate their commitment and focus on safety.

I will now turn the call back to Darren for some closing comments.

Thank you T J.

I want to thank the yellow team comprised of nearly 30000 freight professionals from coast to coast.

They embraced the challenge every day and continue providing essential freight transportation services for our customers and the communities we serve IMAX.

Im excited about the road ahead with our multi year enterprise transformation progressing investments in equipment and technology, along with tight <unk> capacity I remain confident that we are well positioned for 2021 and beyond thanks for your time. This afternoon, we would know.

Happy to answer any questions that you may have.

Our first question today will come from Jack Atkins with Stephen.

Hey, everybody <unk> got weighed on for Jack This afternoon, thanks for taking our questions.

Sure thing Wade.

I wanted to start is there any additional info that you can share with us on the impact of the new equipment that you've been purchasing with the cares act funding sort of how that's impacting the business and what sorts of impacts of savings we can expect in 'twenty one.

Yes. Good afternoon. This is Dan.

We're not going to give any specific guidance around that but what I'll say is we certainly expect to achieve lower maintenance costs as we bring on the new tractors and trailers and of course improved fuel economy on the tractors.

We began taking delivery of that equipment as I mentioned in the back half of the quarter. So even though every unit that comes on.

Positive impact the number of units we brought on during the fourth quarter as a percentage of the overall fleet is relatively small.

So we didn't see much of any financial impact during the fourth quarter.

As we continue to bringing on more equipment in 2021, and we're able to sunset the older units.

We will start to really see a more pronounced impact on the maintenance cost and fuel economy.

Okay, great. Thank you and then sort of as a follow up on the new equipment subject, what's been the customer reaction to the work that you all have been doing reinvesting in the fleet.

And the network has it become easier to go to market are you seeing increased appetite for capacity is that translating into new contract wins just stuff like that.

Hey, this is Darren and yellow, it's all about the customer everything we're doing when we talk through the enterprise transformation.

The network changes the Onboarding of equipment is focused on the customer we've always had a nice advantage across all of the companies that make up yellow.

And having a large widespread customer base close to 200000 customers as we went through negotiations in the fourth quarter. Almost 2000 negotiations, we had very nice positive outcomes and as I mentioned from a pricing aspect that we were running in the 6% range.

Moving forward. So that's all encouraging demand is solid right now the consumer is standing up well construction is strong manufacturing is looking good.

I am confident from a customer perspective, and the demand levels were seeing that pricing will remain favorable and we are proud of the customer base that continues to choose yellow on a daily basis.

Great. Thanks, so much.

So long way.

And our next question comes from Scott Group with Wolfe Research.

Hey, good afternoon, guys, it's Rob on for Scott.

Hello, Rob.

Darren you had noted in your prepared remarks that the contract renewals I think we're up 6% in the month of January can you give us an update what those were in the fourth quarter.

Yes in fourth quarter it was five 6%.

And as <unk> announced general rate increase I don't think I'd seen one last time I kind of had gone through but Im curious if you guys have announced one early this year. We did it's nice timing it went into effect this past Monday at five 9%.

Alright perfect.

I guess.

Q you guys, obviously are a renaming the broader corporation.

Today.

Are you contemplating kind of rolling all of the service offerings into the yellow brand or do you plan to kind of continue to operate.

With multiple brands in the marketplace from a customer facing perspective.

Yes, the enterprise transformation that I referenced and thank you for asking the question. So that I can make sure that we've got absolute clarity on that so so naturally we expect it to increase our property are rolling stock asset utilization is going to give us expanded service offerings that will leverage the.

<unk> flex Flexibilities that we gained in the 2019 labor agreement it will consolidate all of the different technology platforms into a single platform and then also rationalize the number of physical locations in the network. So the result at the end of that Rob will be yellow will be one company.

Yellow will run one network will operate under one yellow brand as a super regional carrier now.

Now in the timeframe between now and the first half of 2022, when all that comes together, we will continue to present, all our brands to the marketplace. These changes will be seamless to the customer just as I mentioned, the five markets that we made changes in in Q1 the customer experience.

Just gets easier by being able to engage one carrier and get the offerings of the entire corporation. So that will occur yes.

<unk> will become a super regional carrier going to market as one brand, which will be yellow.

Between now and the first half of 2022.

And I guess Darren.

Think about kind of the process.

This transformation.

Into the Super regional carrier, how should we think about kind of the cadence and the cost saving opportunity for.

For the broader company.

Yes, all of those I, just mentioned certainly reducing duplicate efforts just as we've done in the markets I mentioned in Birmingham, Alabama for example, where you had Holland and wire sea freight operating separately today. They are operating together, so rather than having two drivers.

Two comp from two of our companies at one customer we're able to service that was one driver one tractor one set of equipment.

That's what drives that asset utilization in the right direction. We will continue those changes steadily throughout the year moving to one platform that starts with new Pan moving over to the same technology platform is why our sea freight than Holland and right away, we will follow that over that.

<unk> period, we will also be adjusting the network. The good thing is our networks operate.

As three best in class regional carriers, right now and by putting connectors in place and also with what TJ mentioned, the next day operation in Texas for wire Sea freight and the mid Atlantic. It allows us to put the companies together from a network aspect with very little disruption.

And only makes the customers.

Service experience better.

Got it I will.

I will turn it over and hop back in the queue.

If there are any further questions you can go ahead and join our team at this time.

Well no further questions. This will conclude our question and answer Stephanie I'd like to turn the call back over to the company for any closing remarks.

My apologies, we do have actually we have a follow up from Scott group with Wolfe Research.

Hey, thanks, Thanks for taking the follow up.

In terms of the cadence with the with the tranche B with U S Treasury loan.

Should we think about the capital investments is that all going to be kind of front half loaded.

When will we get additional color in terms of D day.

The remaining.

I want to call it 100, roughly $150 million.

Yes. This is Dan as I mentioned in my opening comments.

Expect that during the first quarter alone, we expect to acquire approximately 1100 tractors in 1900 trailers.

And we would expect the majority of that $176 million to be spent.

In the next two to three months and then as far as the remaining $149 million.

We expect to request and to use that throughout the remainder of 2021.

That said because of the return on the investment we get from the new Rolling stock the tractors and trailers as quickly as we're able to get our hands on that net.

Somewhat dependent on the the Oems the earlier, we can get that equipment the better it is for us.

And are you guys buying exclusively new.

With the Treasury funds are you also contemplating buying used like.

Any additional color you could provide in terms of the.

The current 100 tractors youre going to be getting over the near term sure yeah. The vast majority of the equipment.

In our Capex plan for the entire year not just the transportation is going to be on new tractors and trailers.

We also because of our liquidity position and the support of the tranche B fund.

We're not entering into any new leases in 2021, and there are quite a few.

Lease buyout that we'll be doing during 2021 as well.

And Dan It is front end loaded back end loaded and how should we think about the magnitude of the buyout from from a capital deployment perspective.

The lease buyouts will happen just as they come due as they reach end of lease so those are going to be spread fairly evenly throughout the year.

Got it thanks for the time.

Thank you Rob.

And we have an additional question from Jack Atkins with Stephen.

Hey, guys. Thanks for taking the follow up.

I had a question about the LPL demand landscape and sort of how that impacts your network optimization plans.

It seems like we've seen and we're continuing to see some resiliency amongst shippers in the traditional end markets, but it also feels like we're starting to feel the impacts of the new type of customer in the <unk> market.

In the E Commerce shippers. So when you think about the way that your network is positioned.

Is what you have the right footprint geographical coverage et cetera or are there some new found needs your opportunity set that sort of popped up over the last nine months, you've identified that you might look to execute on this year.

Anyway. This is T J happy to take that question thanks for asking.

You'll always see we are well positioned first off on the E Commerce, and we do a fair amount of business with.

Large medium and small E commerce players.

We are seeing is that and why do I feel that we're well suited for that.

We see a lot of additional and new warehousing space for E. Commerce, So that favors our network capabilities, our overall super regional capabilities of yellow.

So we're well suited for that we stay in touch obviously very closely with these E commerce players and they communicate very well with us in terms of their anticipated growth rate there surge periods from a calendar standpoint.

We have been able to help out quite a few of them as a matter of fact, where there have not been able to gain capacity that they need for their.

Pretty robust growth.

Theyre seeing really particularly since COVID-19. So there is a reflection of what's going on related to COVID-19 and the pandemic, where those E commerce shippers and they have increasing needs for capacity.

Okay. That's very helpful. If I could trouble you in one more here.

Henry Logistics could you speak a little bit to the strategic importance and complement to the rest of your business and sort of how that has or is helping you.

Navigate the market now and sort of what role you see it playing.

On the line.

Henry logistics.

As a nice story for 2020.

Certainly with the number of asset based salespeople that we've got in the market and also the number of customers that are asset companies allow Henry logistics to have access to we saw very nice growth in that area. It really complements all the other services that we do and broadens our.

<unk> access to all of the logistics services that many provide but also that they are able to connect with the asset services of the company.

<unk>.

Dan any additional comments from the elevated purchase transportation on the good side associated with Henry Logistics certainly comes with margins. So we can we can call that out yeah, I would just say that although Henry logistics is still.

Relatively small percentage of our total revenue, it's growing at a rapid pace and that year over year growth did accelerate as the year went on.

Great. Thanks, so much.

Thank you.

And this will conclude our Q&A session and I would like to turn the call back over to the company for any closing remarks.

Thank you operator, and thanks again to everyone for joining US today, please contact Tony with any additional questions that you may have this concludes our call and operator I'm turning the call back to you.

Yes.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Good day and welcome to Yellow Corporation's fourth quarter 2020 earnings call all participants will be in listen only mode.

After todays presentation, there will be a question and answer session.

Note. This event is being recorded.

I would now like to turn the conference over to Tony Carreno, Vice President of Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone welcome to yellow Corporation's fourth quarter and full year 2020 earnings conference call.

Joining us on the call today are Darren Hawkins, Chief Executive Officer, Dan Olivia Air Interim Chief Financial Officer.

T J O'connor Chief operating officer.

During this call we may make some forward looking statements within the meaning of federal Securities Law. These.

Forward looking statements and all other statements that might be made on this call, which are not historical facts are subject to uncertainty and a number of risks and therefore actual results may differ materially.

The format of this call does not allow us to fully discuss all of these risk factors.

A full discussion of the risk factors that could cause our results to differ please refer to this afternoon's earnings release, and our most recent SEC filings, including our forms 10-K and 10-Q.

These items are also available on our website at my yellow Dot com. Additionally.

Additionally, please see today's release for a reconciliation of net loss to adjusted EBITDA.

In conjunction with today's earnings release, we issued a presentation, which may be referenced during the call. The presentation was filed in an 8-K, along with the earnings release and is available on our website.

I will now turn the call over to Darren.

Yes.

Thanks, Tony and good afternoon, everyone. Thank you for joining our call. We're excited to announce that effective today. We are yellow Corporation. This is a name with a strong brand awareness that represents our proud history as the original American <unk> company.

Turning to Q4, adjusted EBITDA improved by $10 6 million compared to a year ago and operating income improved by 14 million excluding gains on property sales pricing continued to improve during the quarter and that trend has carried into 2021 for.

For the month of January the yellow companies averaged around plus or minus 6% on contract negotiations.

With the industrial and retail segments of the economy, improving a shortage of qualified drivers as keeping L. TL capacity at a fairly consistent level. The driver shortage is an industry wide problem and we remained focused on recruiting and training additional drivers we will continue to make this approach.

Rd, and Youll hear more about this from T J.

In Q4, we successfully implemented an intermodal change of operations in Memphis. This change allows for the movement of shipments on intermodal containers to and from our Western U S operations, we kicked off 2021 by continuing our network optimization efforts with the integration of Phi.

<unk> legacy national terminals into operations at our regional terminal in January.

2007, we have a number of additional integrations slated throughout 2021 as we continue our path towards transforming the yellow network into a super regional operation.

When completed the enterprise transformation is expected to increase property and rolling stock asset utilization expand service offerings and leverage operational Flexibilities gained with our 2019 labor agreement.

The results will be to operate on one yellow technology platform as one yellow network and under one yellow brand that provides excellent service to our customers.

<unk> stock that we're onboarding.

Mr. <unk>. Most recently served as EVP of logistics and President CEO of Walmart Transportation LLC I am very pleased to welcome down to yellow board of directors with their impressive proven track records from both a shipper and carrier perspective.

<unk> yellow will benefit tremendously from their insight and leadership experience.

And hiring and training drivers. We also plan to continue executing the information technology phase and network optimization as part of our enterprise transformation I will now turn the call over to Dan who will share additional details about the quarter.

Thank you Darren and good afternoon, everyone for the full year 2020, operating revenue was $4 $5 1 billion compared to $4 87 billion in 2019 opt.

Operating income in 2020 was $56 5 million, which included a $45 3 million net gain on property sales.

This compares to operating income of $16 2 million in 2019, which included a $13 7 million net gain on property sales.

Adjusted EBITDA for full year, 2020 was $191 9 million compared to $210 6 million in 2019.

For the fourth quarter of 2020 operating revenue was $1 7 billion compared to $1 $1 6 billion in 2019.

Operating income for the fourth quarter was $13 7 million compared to $9 8 million in the prior year, which included a $10 1 million net gain on property sales.

Adjusted EBITDA for the fourth quarter, 2020 was $57 9 million compared to $47 3 million in 2019.

Revenue for the fourth quarter reflected a two 4% increase in <unk> tonnage per day in <unk> weight per shipment was up two 5%.

Sequential LCL tonnage per day trends during the fourth quarter were as follows and these are compared to the prior year October up one 9% November up two 2% and December up three 2%.

On a preliminary basis January LCL tonnage per day was up between 2% and 3%.

Excluding fuel surcharge <unk> revenue per hundredweight was up two 2% and <unk> revenue per shipment was up four 8%.

Including fuel surcharge LTR revenue per hundred weight was down 0.7% and <unk> revenue per shipment was up one 8%.

Total liquidity at the end of the fourth quarter was $440 million compared to $80 million at the end of 2019.

Total capital expenditures for the fourth quarter were $99 million compared to $32 million in the prior year.

Now for a brief update on the U S treasury loans relate.

Related to the 300 million tranche a loan during the fourth quarter, the remaining $55 million available under tranchet was requested and funded.

So as of the end of 2020, all $300 million of tranche a has been drawn $274 million of which has been used and we expect the remaining $26 million will be used during the first quarter of 2021.

Related to the 400 million tranche B loan as we mentioned on the third quarter earnings call. The first $75 million of tranche B was requested and funded in October.

$72 million of which was used to acquire more than 300 tractors and 200 trailers most of which was in the back half of the quarter.

As Darren mentioned, the next $176 million of tranche B was received during January.

So in total as of today, we have drawn $251 million and we expect to draw the remaining $149 million throughout the remainder of 2021.

With the incremental funding from tranche B, along with our strong liquidity position, we plan to significantly increase our capital expenditures in 2021 to a range of $450 million to $550 million.

In addition to tractors and trailers investments will include technology box truck containers lift gates and other assets.

During the first quarter alone, we expect to acquire approximately 1100 tractors 1900 trailers in 250 containers.

Specifically as it pertains to elevated purchase transportation expenses caused by the shortage of qualified drivers.

As we continue to work through that challenge and place new equipment into service, we expect our year over year financial performance in 2021 to improve as the year progresses.

With that I will turn the call over to T. J.

Thank you Dan and good afternoon, everyone.

Net is a very exciting time at yellow, we have the opportunities to implement one of the largest capital expenditure plans in our company's history.

This combined with the progress we are making on our multi year enterprise transformation will further enhance our position in the marketplace.

As you heard from Darren the industry is experiencing a shortage of qualified drivers.

We have taken and are taking to hire drivers include implementing a signing bonus accelerating pay progressions in certain markets and expanding our driving academies.

We are increasing the number of driving schools and by the end of March we expect to have 12 academies in operation around the country.

We also look internally and see great potential in our current employees such as box truck drivers and dock workers, who are part of the yellow team, but not yet CDL qualified.

We will continue to look at opportunities to ensure we are prepared to meet the needs of our customers and have sufficient capacity.

Roughly 45% of the increase in purchase transportation was due to rail from higher volume. In addition to growth at Henry logistics. The remaining increase in purchase transportation is primarily due to the use of expensive local cartage and over the road purchase transportation both of which were impacted.

<unk> by tighter capacity.

Moving forward, we will continue using rail where we can do to the cost efficiency and the positive impact on driver availability.

We expect net by continuing to focus on hiring and training drivers and will help reduce cartage expense finally, as we purchase of tractors trailers and containers and our Capex plan, we expect to use fewer short term rentals and to see a decrease in leased equipment.

On a year over year basis, we anticipate higher purchase transportation expense will continue for the first couple of quarters in 2021.

The intermodal change of operations in Memphis was executed as planned in December and as an example of a coordinated steps we are taking as part of the enterprise transformation.

This month, we plan to add regional next day service to the mid Atlantic region through our National carrier. This follows a similar expansion implemented in the mid south and through taxes in 2020.

The Richmond expansion can ex legacy national and regional terminals in five states customers will now have access to faster transit times and more streamlined supply change, which is a blueprint for our Super Regional service.

We continue to work on the technology phase and the network optimization of our enterprise transformation.

The technology phase includes consolidating pickup and delivery.

Sales customer service line haul.

Human resources.

Maintenance.

And in cash safety to one platform when completed we will operate with one set of technologies refined to support a super regional model.

In closing I would like to thank our dedicated and safety minded professionals at yellow.

Even in the face of a pandemic the challenge supply chains across North America in 2020, we had improvement in both injury and accident performance I sincerely appreciate their commitment and focus on safety.

I will now turn the call back to Darren for some closing comments.

Thank you T J.

I want to thank the yellow team comprised of nearly 30000 freight professionals from coast to coast.

They embraced the challenge every day and continue providing essential freight transportation services for our customers and the communities we serve IMAX.

I am excited about the road ahead with our multiyear enterprise transformation progressing investments in equipment and technology, along with tight <unk> capacity I remain confident that we are well positioned for 2021 and beyond thanks for your time. This afternoon, we would know.

Happy to answer any questions that you may have.

Our first question today will come from Jack Atkins with Stephen.

Hey, everybody <unk> got weighed on for Jack This afternoon, thanks for taking our questions.

Sure thing way.

I wanted to start is there any additional info that you can share with us on the impact of the new equipment that you've been purchasing with the cares act funding and sort of how that's impacting the business and what sorts of impacts your savings we can expect in 'twenty one.

Yes, good afternoon way this is Dan.

We began taking delivery of that equipment as I mentioned in the back half of the quarter. So even though every unit that comes on.

Positive impact the number of units we brought on during the fourth quarter as a percentage of the overall fleet was relatively small.

So we didn't see much of any financial impact during the fourth quarter.

As we continue to bringing on more equipment in 2021, and we're able to sunset the older units.

<unk> will start to really see a more pronounced impact on the the maintenance cost and fuel economy.

Okay, great. Thank you and then sort of as a follow up on the new equipment subject, what's been the customer reaction to the work that you all have been doing reinvesting in the fleet.

And the network has it become easier to go to market are you seeing increased appetite for capacity is that translating into new contract wins and stuff like that yes. It played this is darren.

Hello, It's all about the customer everything we're doing when we talk through the enterprise transformation.

The network changes.

On boarding of equipment is focused on the customer we've always had a nice advantage across all of the companies that make up yellow and having a large widespread customer base close to 200000 customers as we went through negotiations in the fourth quarter almost 2000.

<unk>, we had very nice positive outcomes and as I mentioned from a pricing aspect.

Net we're running in the 6% range moving forward. So that's all encouraging demand is solid right now the consumer is standing up well construction is strong manufacturing is looking good.

I'm confident from a customer perspective, and the demand levels were seeing that pricing will remain favorable.

We're proud of the customer base that continues to choose yellow on a daily basis.

Great. Thanks, so much.

So long way.

And our next question comes from Scott Group with Wolfe Research.

Hey, good afternoon, guys, it's Rob on for Scott.

Hello, Rob.

Darren you had noted in your prepared remarks that that contract renewals I think we're up 6% in the month of January can you give us an update.

What those were in the fourth quarter.

Yes in fourth quarter it was five 6%.

And that's why you see announced general rate increase I don't think I've seen one last time I kind of.

It had gone through but I'm curious if you guys have announced one early this year. We did it's nice timing it went into effect this past Monday, a five 9%.

Alright perfect.

I guess.

Q you guys.

We sell a renaming the broader corporation.

A day.

Are you contemplating kind of rolling all of the service offerings into the yellow brand or do you plan to kind of continue to operate.

With with multiple brands in the marketplace from a customer facing perspective.

Give us expanded service offerings and will leverage the operational flex flexibilities that we gained in the 2019 labor agreement. It will consolidate all of the different technology platforms into a single platform and then also rationalize the number of physical locations in the network. So the result at the.

And of that Rob will be yellow will be one company yellow will run one network.

Operate under one yellow brand as a super regional carrier.

Just gets easier by being able to engage one carrier and get the offerings of the entire corporation. So that will occur yes.

<unk> will become a super regional carrier going to market as one brand, which will be yellow.

Between now and the first half of 2022.

And I guess Darren.

Think about kind of the process.

This transformation.

Induced superregional carrier, how should we think about kind of the cadence and the cost saving opportunity for.

For the broader company.

Yes, all of those I, just mentioned certainly reducing duplicate efforts just as we've done in the markets I mentioned in Birmingham, Alabama for example, where you add Holland and wire sea freight operating separately today, they're operating together, so rather than having two drivers.

Two comp from two of our companies at one customer we're able to service that was one driver one tractor one set of equipment.

Over that time period, we will also be adjusting the network. The good thing is our networks operate.

And only makes the customers.

Service experience better.

Got it I will.

I will turn it over and hop back into queue.

If there are any further questions you can go ahead and join our team at this time.

Well no further questions. This will conclude our question and answer session I would like to turn the call back over to the company for any closing remarks.

My apologies, we do have actually we have a follow up from Scott group with Wolfe Research.

Hey, thanks, Thanks for taking the follow up.

In terms of the cadence with the with the tranche B with U S Treasury loan.

Should we think about the capital investments is that all going to be kind of front half loaded.

When will we get additional color in terms of the remaining.

Want to call it 100, roughly $150 million.

Yes. This is Dan as I mentioned in my opening comments.

During the first quarter alone, we expect to acquire approximately 1100 tractors in 1900 trailers and we would expect the majority of that $176 million to be spent.

And the next two to three months and then as far as the remaining $149 million.

We expect to request and to use that throughout the remainder of 2021.

That said because of the return on the investment we'd get from the new rolling stock the tractors and trailers as quickly as we're able to get our hands on that net.

Somewhat dependent on the the Oems the earlier, we can get that equipment the better it is for us.

And are you guys buying exclusively new.

With the Treasury funds are you also contemplating buying used like.

Any additional color you can provide in terms of the.

The current 100 tractors youre going to be getting over the near term sure. Yes, the vast majority of the equipment.

In our Capex plan for the entire year not just the tranche b is going to be on new tractors and trailers.

We also because of our liquidity position and the support of the tranche B fund.

We're now entering into any new leases in 2021, and there are quite a few.

Lease buyouts that we'll be doing during 2021 as well.

And Dan from.

Front end loaded back end loaded and how should we think about the magnitude of the buyout from from a capital deployment perspective.

The lease buyouts will happen just as they come due as they reach end of lease so those are going to be spread fairly evenly throughout the year.

Got it thanks for the time.

Thank you Rob.

And we have an additional question from Jack Atkins with Stephens, Inc.

Hey, guys. Thanks for taking the follow up.

I had a question about the <unk> demand landscape and sort of how that impacts your network optimization plan.

In the E Commerce shippers. So when you think about the way that your network is positioned.

Is.

What you have the right footprint geographical coverage et cetera, or are there some new found needs or opportunity set that sort of popped up over the last nine months, you've identified that you might look to execute on this year.

Anyway. This is TJ happy to take that question thanks for asking.

We see we are well positioned first off on the E Commerce, and we do a fair amount of business with.

Large medium and small E commerce players, what we are saying is that and why do I feel that we're well suited for that.

We see a lot of additional and new warehousing space for E. Commerce, So that favors our network capabilities, our overall super regional capabilities of yellow.

We're well suited for that we stay in touch obviously very closely with these E commerce players and they communicate very well with us in terms of their anticipated growth rate there surge periods from a calendar standpoint.

We have been able to help out quite a few of them as a matter of fact, where there have not been able to gain capacity that they need for their.

Pretty robust growth.

Okay. That's very helpful. If I can tell you in one more here.

Henry Logistics could you speak a little bit to the strategic importance and complement to the rest of your business and sort of how that has or is helping you.

Navigate the market now and sort of what role you see it playing down the line.

Henry logistics.

A nice story for 2020.

<unk> access to all of the logistics services that many provide but also that they are able to connect with the asset services of the company.

Dan any additional comments from the elevated purchase transportation on the good side associated with Henry Logistics certainly comes with margins. So we can we can call that out.

I'd, just say that although Henry logistics is still relatively.

Small percentage of our total revenue it is growing at a rapid pace and that that year over year growth did accelerate as the year went on.

Great. Thanks, so much.

Thank you.

And this will conclude our Q&A session and I'd like to turn the call back over to the company for any closing remarks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q4 2020 YRC Worldwide Inc Earnings Call

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