Q2 2021 Yellow Corp Earnings Call

August 4, 2021

[music].

Good afternoon, everyone and welcome to the Yellow Corporation's second quarter 2021 earnings call. All participants will be in a listen only mode. After today's presentation. There will be a question and answer session. Please note that this event is being recorded I would now like to turn the conference every day, Tony Carreno Vice President of Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone welcome to Yellow Corporation second quarter 2021 earnings Conference call.

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

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

Forward looking statements and all of those statements that might be made on this call, which are not historical facts are subject to uncertainty and a number of risks.

Therefore actual results may differ materially.

Format of this call does not allow us to fully discuss all of the risk factors 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 and 10-Q.

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.

Is available on our website.

I will now turn the call over to Darren.

Thanks, Tony and good afternoon, everyone. Thank you for joining our call today, We reported Q2.2021, adjusted EBITDA of $82.9 million, a $69.7 million improvement compared to Q1 of this year and an increase of 45 million income.

<unk> 2 a year ago I am pleased with the execution of our yield strategy and the steps we are taking to mitigate higher purchase transportation expense. As we look ahead, we expect a steady staircase of improvement demand for LPL capacity has remained strong driven.

<unk> e-commerce on a recovering manufacturing sector that has yet to return to full strength.

As the U S supply chain struggles to keep up much of the growing demand is in the middle mile segment, which is ideal for LPL carriers due to the shorter length of haul and more appealing lifestyle for LCL drivers most of whom are able to be at home with their families. Each night.

With the growth of ecommerce requiring warehouses near major population centers the need for middle mile services position to remain strong on the supply side of the equation trucking capacity is being kept in check by an industry wide shortage of qualified drivers and dock workers.

We are working diligently to meet our customers' needs, while making sure the optimum level of freight is flowing through our network and such a tight capacity market. It is also imperative to ensure pricing reflects the demand from the service. We provide our strategy is to grow the business. However in the near term.

We are leaning into yield growth over tonnage growth to help manage through the industry wide shortage of drivers and near term purchase transportation headwinds favorable year over year pricing trends have carried into Q3 for the month of July yellow average between 11 and 12 per.

<unk> on contract negotiations.

We are executing key steps in our transformation to 1 yellow.

During the second quarter read always bargaining unit employees voted to enter into the National Master freight agreement joining the rest of our operating companies all of our bargaining unit employees are now aligned with the Msas March 'twenty 'twenty 4 exploration.

A single operating system across the network as the technology linchpin to get to 1 yellow wire sea freight and new Penn are now operating under 1 yellow platform with the red away conversion in process and targeted to be completed by the end of the year. This will set the stage for a.

Fully integrated 1 yellow network and streamline the flow of information for operations sales customer service human resources maintenance and in cab technology.

We are also making significant progress on our 2021 capital expenditures plan with the acquisition of more than 800 tractors 200 trailers and 400 containers. During the first half of the year not only are these investments having a positive impact on the age of our fleet.

But over time, we expect them to mitigate maintenance expense and help our sustainability efforts through enhanced safety and improved fuel efficiency as we onboard the new equipment is being branded with the yellow name in conjunction with our transformation. We have also rebranded over 10000 piece.

<unk> of existing equipment with the yellow brand.

Turning to the American Rescue Plan Act of 2021, it was signed into law earlier this year to strengthen eligible multiemployer pension plans that are severely underfunded and to substantially mitigate their unfunded liabilities through 'twenty 51, the 120 day rulemaking period concur.

<unk> in July and the PBGC issued interim final regulations. The regulations provide pension plans guidance on the application process along with a timeline through 2023 on when they can apply primarily dependent upon their funded status the act and the <unk>.

<unk> provides will protect the hard earned benefits of retirees from many companies and many industries, including members of the yellow team.

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

Thank you Darren and good afternoon, everyone for second quarter 2021, operating revenue was 131 billion compared to 1.02 billion in 2020 opt.

Operating income of $27 million compared to an operating loss of $4.6 million in the prior year, which included a 6 million net gain on property sale.

Adjusted EBITDA for the second quarter, 2021 was $82.9 million compared to $37.9 million in the second quarter 2020.

Adjusted EBITDA for the last 12 months was $216 million as of the end of the second quarter.

And as a result of having crossed over $200 million and LTM. Adjusted EBITDA, we are no longer required to maintain a minimum $125 million of liquidity.

Our revenue for the second quarter reflected year over year <unk> tonnage per day growth of 8.3% in <unk> weight per shipment was down 0.4%.

Sequential LCL tonnage per day trends compared to the prior year were as follows.

<unk> up 23, 7% may up 8.9% and June down 3.3%.

On a preliminary basis July <unk> tonnage per work day was down between 5 and 6%.

Including fuel surcharge second quarter <unk> revenue per hundredweight was up 16, 2% and <unk> revenue per shipment was up 15, 8% compared to the prior year.

Excluding fuel surcharge <unk> revenue per hundredweight was up 12% and <unk> revenue per shipment was up 11, 6%.

Total liquidity at the end of the second quarter was $423 million compared to $303 million at the end of the second quarter 2020.

And total capital expenditures for the second quarter were $144 million compared to $12 million a year ago.

Driven by our strong liquidity position, we are narrowing our 2021 capital expenditures guidance from a range of $450 million to $550 million to a range of $480 million to $530 million in.

In addition to the more than 800 tractors in 'twenty 200 trailers added through June.

We expect to add an additional 300, plus tractors and 400 plus trailers by the end of the third quarter.

Next a brief update on U S Treasury tranche B loan.

As of the end of the second quarter, we had drawn down $381 million and in July we received the remaining $19 million.

All $400 million of the tranche B loan has now been drawn.

Finally, our near term focus on prioritizing yield over volume along with the execution of targeted pricing strategies to mitigate our highest cost purchased transportation expenses were key to our improved performance in Q2.

<unk> expenses were still elevated due to strong demand and tight capacity.

However, we reduced PT as a percentage of revenue from 16, 7% in Q1 to 15.0% in Q2, and we expect continued improvement in the back half of the year.

With that I will turn the call over to Darryl.

Thank you Dan and good afternoon, everyone.

During last quarter's earnings call.

Share my initial priorities as the new president of yellow.

With my first full quarter in this role behind me.

I'd like to provide some additional color and an update on these priorities.

Our first priority is to consistently meet our customers' expectations.

While we are not where I expect us to ultimately be on a consistent basis.

By executing our yield strategy, we are carefully managing the volume of freight in our network.

This allows the network to operate more efficiently, particularly in high volume lanes.

As we complete the optimization of our network on our journey to 1 yellow I am confident that we will be in position to grow the volume running through the network.

While meeting our customers' expectations.

Transforming such a large company does not happen overnight.

But I am pleased that our company and dedicated employees were recognized recently with multiple carrier of the year awards from customers, including Walmart and DHL.

The second priority is to successfully execute our hiring and retention strategies.

We continue to focus on a multi pronged approach in this area.

Our driver Academy site expansion is well underway.

We currently have 16 fixed locations across the U S.

With additional mobile academies that can support targeted hiring efforts.

Applicants into the program have more than doubled in the past quarter.

We are committed to growing our own state drivers, both now and into the future.

In addition, our recruitment strategies continue to evolve as we have bolstered our staff and advertising spend to support demand.

The third priority is to complete the enterprise transformation to 1 yellow as planned in 2022.

As we continue our journey to 1 yellow, we're laying the groundwork for success by strategically aligning our teams.

Optimizing the network and moving all brands to 1 technology platform.

We will enhance our service by getting faster.

<unk> more next day lanes and offering regional service in new locations.

From the journey is complete we will go to market as 1 yellow.

Super Regional carrier laser focused on meeting the needs of our customers and growing our business.

As we have previously indicated during the first half of the year, we expected higher purchase transportation expense.

Due to the necessary use of local cartage and over the road purchased transportation.

Both of which are more expensive in such a tight capacity environment.

Our yield strategy is helping us manage these headwinds and we have taken actions to reduce purchase transportation and short term rental expenses going forward.

These actions include purging the network of short term rentals as we acquire new revenue equipment and adjusting our line haul network.

To minimize the use of more expensive purchase transportation in certain lines.

As you heard from Dan we expect to see improvement in this area as we move forward.

In closing.

I am proud of our employees and the progress we're making.

It takes determination and grit to transform a company while also meeting the needs of our customers in such a strong freight environment.

Plenty of work and opportunities are ahead of us.

And our team of dedicated freight professionals are committed to delivering on the vision of.

1 yellow.

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

Thank you Darryl during Q2, we executed our yield strategy and I am encouraged by what we see ahead of us in terms of ongoing LDL freight demand and our ability to improve the company and its financial results with our journey to 1 yellow progressing as expected and the tremendous.

Of this amount of revenue equipment, we are acquiring my expectations for our team and for yellow remain high.

I am confident the company will continue showing progress and that we are well positioned for the future I am also thankful for the dedication of our employees and the continued loyalty of our customers as we manage through the constraints of the North American supply chain. Thanks for your time. This afternoon, we would now be <unk>.

<unk> to answer any questions that you may have.

We will now move into the question and answer section of today's call I'd like to introduce the first questioner for today and that will be Jack Atkins with Stephens. Please go ahead.

Hey, great good afternoon, and congratulations on good progress here in this quarter guys.

So Dan if I could maybe start with you.

You referenced.

I guess July tonnage down 5% to 6% was that an LPL rated freight if you could maybe provide a total tonnage per day for July that would be helpful. And then also an update on just the monthly progression I think for June if you could provide that as well that'd be helpful. Yeah sure Jack Bank to answer.

The first question, yes that was just that <unk> tonnage per day, but thats materially in line with our total as well okay.

And then historically tonnage per day from Q1 to Q2 increases between 5% to 6% and of course this year as a result of executing our yield strategy.

<unk> tonnage per day was only up around 1%.

As I mentioned in my prepared remarks on a year over year basis July tonnage per day was down between 5% and 6% on a sequential basis from June to July tonnage per day was down between 2 and 3% which is really in line with our historical average and then when I think about the sequential change from Q2 to Q3 in total.

<unk>.

Tonnage per day on a historical basis is about 2% lower than Q2.

I wouldn't think that would be too far outside of that range. As we continued to execute execute our yield strategy. Okay. So from what I'm hearing you say theyre, Dan It sounds like Youre expecting things to maybe follow normal seasonality as we move through the through the third quarter from a from a top line a tonnage perspective.

When we think about sort of the.

The tonnage decline in June what type of rate, where you guys kind of focusing on purging from the network can you maybe talk about that just from a moment was that more TL rated freight that was sort of living in the network.

What were you looking to maybe.

Avoid from a freight perspective in June and July.

Jack This is Darren and we focused on the large corporate accounts.

And our contract renewals through that process now are spot in truckload, we've been very selective in that area to reposition equipment, which is in high demand the way the north American supply chain has been out of sync. So truckload in spots very important to us just to reposition equipment, but we're staying away.

From that level of business that we would normally do but on the corporate side with where the real focus was that and I am just very comfortable with the yield strategy were just sound and strong in that area I like the direction, we're going we're focused on profitability and the volume equation will look into that net.

Next year right now we're focused on our network our people and our profitability that yield strategy will remain that way and when you see the 11% 12%.

Creases and contract renewals that continued into July we're going to keep our foot on the gas in that area.

No that makes total sense and then I guess as we're just thinking about bottomline seasonality typically operating ratio deteriorated slightly <unk>.

With the focus on yield.

Improved PT as a percentage of revenue I think thats the plan as we move through the balance of the year new equipment coming in.

Asking for guidance, but would you expect to maybe do a bit better than normal seasonality just given those.

The tailwind sequentially.

Moving to quantified before Dan answers. The specific question you asked I do want to quantify where some areas of improvement.

We will occur in Q3, especially around purchase transportation. So since we're on the subject.

I believe and based on what we've seen in the recent weeks.

The American workers coming off the bench and we've had some success in the area of dock and driver that I believe is going to help with this purchase transportation equation is not going to add capacity to our network. What is going to do is shield us from some of the purchase transportation was saying, but I'd like to hand the talk.

That and then he can answer to your LCR question and Darryl can follow it up with 1 of the hiring basis go ahead, Dan Yeah, I'll start with the purchase transportation cost Jack total PC for the.

Quarter was up $84 million year over year $16 million of that came from.

Revenue generating PC, that's associated with the growth that our logistics division our over the road PT was up $28 million.

Rail was up $21 million and local cartage was up $15 million.

As I've mentioned in my prepared remarks, Teekay expenses are still elevated due to the strong demand and tight capacity, but.

But we did reduce <unk> as a percentage of revenue from 16, 7% in Q1 to 16% in Q2, and we do expect continued improvement in net back half of the year.

Lastly on that I will say I want to point out that our total swerve MPT combined in the second quarter was 73% of revenue.

Which is down from 77% in Q1 and down from 76% in Q2 of last year.

As far as margin you brought up a good point sequentially on a historical basis. We are operating ratio increases slightly from Q2 Q3, but with the continued strong focus on yield our continued investment in the new equipment I expect we havent had to perform better than that historical trend.

Okay. That's great that's very encouraging Dan. Thank you and I think that's great to hear so I guess, maybe last question from me and I'll turn the floor over but.

I guess for for Darren or Daryl if you could maybe talk about as we look forward into 2022.

And the completion of.

The network integration for 1 yellow.

Getting all 4 operating companies on 1 system can you maybe talk for moment about what that's going to unlock for you in terms of operating efficiencies not asking for you to quantify a number but just maybe kind of help us think about.

Will we begin to really see those operating efficiencies show up pretty quickly once once that once that 1 yellow.

Initiative is really complete.

We're in a position where the rep. The completion of the railway contract removes the last barrier that contract now has the same exploration.

As the rest of our companies and also it includes language to allow us to make the changes we made to go to 1 yellow on the west coast. So with all of that out of the way the networks being connected in 2022, we will be able to go to market as yellow.

Superregional carrier, we can provide that 1.2 and 3 day service.

Any ones accustomed to from the regional environment and the transcontinental service that any national customer would expect you can do it through 1 touch 1 contact you get the best service that we offer just by tendering the shipment to yellow that is our value proposition. It puts this company after many many years and our.

And to actually expand and grow market share. That's why I made the comments on tonnage not worried about that area of the business day.

During this segment of Q3 and Q4, we're focused on pricing will continue to do that and then the tonnage pace will come when more 1 yellow and we're bringing that value to the marketplace that justifies strong yield and strong tonnage growth at the same time, it's an exciting time and we're or per.

<unk> of what we're doing around 1 yellow.

Okay, great. Thank you for the time this afternoon guys.

Thank you Jack.

And our next question will come from Scott Group with Wolfe Research. Please go ahead.

Hey, Thanks afternoon, guys. So I just wanted to follow up on the operating ratio.

Other 2 union.

<unk> or both.

Yes.

Sub 90, or 99% up 90 hours this quarter.

I know you said, it should be a little bit better than or something better than normal seasonality in third quarter, but.

Anything more you can give us in terms of where these where do you think these margins can go in the near term in the back half.

Scott when you look at the yield strategy being sound and strong and coming across our market leading on actual revenue per hundred weight. The positive trends that we've talked about in purchase transportation also continuing with strong hiring over the last 3 weeks that we believe we will.

<unk> to drive purchase transportation in the right direction.

Largest investments from a capex pace half a billion dollars this year into equipment and others and then the steady progress on 1 yellow that I just talked about and then you back.

Back all of that up with a strong liquidity position of over $400 million. This company is in.

<unk>, an excellent spot during an excellent market to move in the right direction and that staircase of improvement I talked about we are well positioned for that not guiding around 2022, but I am trying to demonstrate that each quarter. We're going to continue this level of improvement while retooling the company.

Compete as a super regional carrier and that we have the wherewithal to see that strategy all the way through.

Okay.

Can you give us an update.

Where we are in terms of terminals today, and where when we're complete with the 1 yellow integration, where you think we're going to end up.

Right now we're at 322.

There is not going to be dramatic change in that number between now and the end of the year, we will land somewhere around 310.1.

When we're complete maybe 309, but with the changing capacity equation, 1 thing im not willing to do in this 1 yellow changes to give up geography or to give us capacity that our customers need and the right market. So we're watching that closely but the final numbers going to be.

North of 300, probably in the <unk> 10 range and that will play out over the next 2 or 3 quarters.

And what do you think about other overhead things like.

Be it people or other parts of overhead.

What are the opportunities there.

Well certainly when you look at our holding company that was designed to support 4 separate companies, there's lots of opportunity in there.

Net area as we transition to 1 yellow, but I'd like Darren to talk about some recent trends we've seen and also this area around purchase transportation that Dan gave the percentages zone, but Darryl I'll make a few comments around your plans in that area.

Yes, thanks, Darren so Scott in that area I mean, obviously, our primary focus in Q2 and then ongoing in Q3 is really about controlling the PT expense that got away from us in Q1, and we've been very aggressive about returning short term rental equipment of course targeted hiring and locations, where we were seeing high levels of PT.

And Darren has already mentioned the whole component.

With the yield piece that we're utilizing to throttle that to ensure that those costs remain in check.

What gets me excited is more about the future and where we're going when we become 1 yellow you talk about the fact that being on 1 technology haven't been in this job for 4 months now I can tell you theres a lot of hoops that you jumped through inside of the organization when you're on multiple pieces of technology and so when you combine the integration.

Of the network along with being on 1 platform. The synergies that are created the operational efficiencies that are driven than as you mentioned and the opportunities with overhead are pretty clear to be seen and so right now we're balancing.

The efforts to transform our business with a strong demand environment that we're in and really focused on the fundamentals along the way.

And I guess, what I'm trying to get like put the PT issue aside that will ebb and flow with.

With the cycle I'm just trying to is the overhead is this $100 million opportunity $500 million opportunity.

That's a smaller number.

Not really sure how to think about.

Stuck with the position that this is a show me story in each quarter when I talk about the staircase of financial improvement on our path to profitability and our path to 1 yellow we're trying to lay out each piece of the equation and give adequate information on the equipment that's coming in the actions we're taking.

But we're still not prepared to give guidance.

Do you think you've realized any overhead savings yet through this process.

Yes, absolutely.

On the sales side of the equation, our commercial division, we've seen a very streamlined approach it's happening in our pricing group as well now that we've brought that group together.

From a human resource standpoint, the human resource Department, and then also as it moves through maintenance.

And then the corporate structure overall, it's efficiencies that are being gained and will continue to capture those.

Okay Alright. Thank you guys. Appreciate it thank you Scott.

And our next question will come from Jeff Kauffman with vertical research partners. Please go ahead.

Thank you very much well congratulations on the progress.

Just a couple quick things can we go back through that purchase transportation discussion I don't write as fast as I would like to.

But it started with you talked about <unk> being up 84 million of net new deducted.

With DTE.

Related to.

I don't know if there was a logistics business and then you talked about the OTR increase the intermodal and the.

Cartage can I ask you go through that math again.

Yes sure Jeff This is Dan.

So, yes, youre right on $84 million year over year in total.

The revenue generating PT was up $16 million, that's tied to our logistics division.

The OCR <unk> was up $28 million.

Rail was up $21 million.

And local cartage was up 15 million 1.5.

Okay. So you talked about the progression from 16, 7% on the first quarter.

I guess the way I'd think about it is when you get this right.

Good day.

Net percentage fee and is the issue here that you were caught short of people and you had to go out and purchase in the market at higher prices or that you have the right amount of people and you're engaging in normal <unk> is just the market prices are so hi, Geoff this is Darren.

The $16 million in logistics love It we want more of it I want to see it grow and expand and double digit growth. The business is exploding, we're proud of it and im anxious to see it to be material, where we can talk about it more often.

The $21 million rail very comfortable there the $15 million in local cartage.

That's an area that we can impact with our box truck operation and also we've seen some nice success in local city pickup and delivery hiring that will continue to bring that down to optimize and go to the point that you ask what would be add deal. So a portion of over the road a portion of.

Rail is a very good mixture for us and what would be ideal right. Now is for us to have more line haul drivers, we're making nice progress in city operations, we're still short on the over the road drivers and we're using purchased transportation in lanes that we would rather not so through the hiring initiatives and Michael.

<unk> about the American worker coming off the bench Daryl and his recruiting team has seen some nice additions over the last 2 to 3 weeks and even though that doesn't do anything on the overall capacity equation for us what it does do is we continue to expand this line haul driver piece, where we can move away from some of the more expensive <unk>.

So that percentage would be down 3 or 4 points total on revenue, but as long as we're using contractual PT in the right lanes and fully utilizing the rail that aligns with our service commitments.

It would be very pleased with that pace and that's what we're working toward.

It was a great answer thank you 1 follow up.

Not to be critical I apologize it comes off that way, but.

With 16% yield improvement on 8% tonnage growth I would've thought.

That the incremental margins would have been a little stronger I think PT was part of it but when I went back and look the increase in labor expense. It did seem to be a little bit more than I would've guessed, given kind of 8% to 9% shipment and tonnage growth.

So I just want to know if there were some special items in there or you're just trying to hire and get ahead of things.

It just seemed a little bit higher than I would've expected. So can you help me understand that.

2 pieces 1 is the training piece. So we've got a lot of new employees coming in and their experience levels requires training mentoring.

And ties up existing employees as well, but most importantly, the part of the discussion goes to we have a tremendous amount of extra people in the organization as part of this transformation and doubling up in terminals that are converting to new technology to make sure. The customers' experience is seamless through that process.

SaaS all of these people bring tremendous value to the organization, but over time, they will be redeployed into pure <unk>.

Customer facing operational roles that are critical to the business and a lot of the extra expense and overhead that we're having to invest and to get through the 1 yellow transformation will normalize during the next several quarters.

Okay. So there's another point I guess end of day is if I look out say a year from now let's just say the market is exactly where it is today.

Indeed when once.

The singular system is employed at the company and once some of those training and expenses done there could be 345 hundred points of revenue that we pick up over time.

As I mentioned with Scott Im not willing to go into the area of guidance, but what I am willing to say and I made this comment in my script.

High expectations for this team and I have expectations that.

The system and the 1 yellow will be much sooner than the timeframe you just mentioned and that those benefits will be normalizing.

We're aggressive we're serious about this mission and.

We're going to bring that value to our customers quickly.

We wouldn't be doing our job if we didn't ask so thank you for your answers and congratulations hey, Thank you for the coverage.

And our next question will come from Bruce Chan with Stifel. Please go ahead.

Hey afternoon, gentlemen, thanks for the time.

Couple of questions here for you the first 1 a little bit more on the housekeeping side.

Dan you gave us some of the sequential monthly trends.

On the tonnage side.

I may have missed it but did you give a progression for yield by month and if not would you be able to do so.

I did not and we typically don't give what the sequential youll changes or through the quarter, but what I will say is that yield on a year over year basis was accelerating through the quarter as Darren mentioned in July.

Contractual renewals were north of 11% and when I think about Q2 on average what kind of average around 10%, we still continue to see momentum there.

Okay, Great. That's really helpful. And then second question.

Maybe a little bit more thematic.

On service levels and claims ratios.

I don't need any hard numbers of course, but maybe you can speak to some of the sequential experience there, especially as you start out to rollout some of the shiny new equipment.

Is it opening up some opportunities for you to take pricing up even further.

I'll start with that Bruce and I appreciate you being on the call today also and I'll, let Darren will make any comments as well.

The entire industry right now the entire North American supply chain is still in crisis with customers.

Really being positive about a carrier being able to pick up the freight <unk>.

Service is a challenge across the industry, we see it on the larger accounts, where services displayed by carrier and each carrier is really focused on their network keeping an efficient and also protecting it from those log jams that are created when we get to overcapacity anytime there is a lot of re handle.

Then claims can be an opportunity we've been very consistent on claims over a long period of time, there's always room for improvement the all of the new trailers that were purchasing will certainly play well in that arena, we haven't talked about that enough because the tractors are such a big.

Return the trailers, Brian very nice ROI with them as well and also benefit benefit to customers in a positive way. So all green shoots in that area for the company, there or anything you'd like to add there.

Yes, Bruce I would just say, we're obviously experiencing some constraints in certain markets as all of the carriers are right now due to tighter capacity in the employee availability P. Very encouraged by the the last 3 weeks of hiring the best hiring numbers that we've seen in the last all year here in the last 3 week, particularly around dock workers and drivers in <unk>.

The city operations and what that does force is it really helps us keep the net we're more on track and fluidity within the network that allows us to reduce re handle reduce overtime reduced these things that would create inefficiencies, particularly might drive claims in the wrong direction and so we haven't seen inflation there we are.

Claims number we have seen our service numbers have been challenge when compared to a normal environment and so our main focus is a high level of communication with our customers. So that they understand where our pinch points are but then more importantly, providing them the much needed capacity that they badly need in this environment with our.

Nationwide network and so service is 1 we're going to continue to work through and that's why we're utilizing the yield lever as necessary to make sure that we can meet our customers' expectations.

Okay, great thanks for that color.

Sure.

Yes.

And this will conclude our question and answer session I would like to turn the conference 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.

Thank you and this now concludes today's call. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Okay.

[music].

Good afternoon, everyone and welcome to the Yellow Corporation second quarter 2021 earnings call. All participants will be in a listen only mode. After today's 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 the Yellow Corporation second quarter 2021 earnings Conference call.

Any of US on the call today are Darren Hawkins, Chief Executive Officer, Dan Olivia Air Interim Chief Financial Officer, and Daryl Harris President.

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

Format of this call does not allow us to fully discuss all of the risk factors.

Paul 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 form 10-K and 10-Q.

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.

Is available on our website I will now turn the call over to Darren.

Thanks, Tony and good afternoon, everyone and thank you for joining our call today, We reported Q2.2021, adjusted EBITDA of $82.9 million, a $69.7 million improvement compared to Q1 of this year and an increase of 45 million.

Compared to a year ago I am pleased with the execution of our yield strategy and the steps we are taking to mitigate higher purchase transportation expense as we look ahead, we expect a steady staircase of improvement.

Man for LPL capacity has remained strong driven by E. Commerce on a recovering manufacturing sector that has yet to return to full strength as the U S supply chain struggles to keep up much of the growing demand is in the middle mile segment, which is ideal for L. T. L carriers due to the shorter length of.

Paul and more appealing lifestyle for LCL drivers, most of whom are able to be at home with their families. Each night with the growth of ecommerce requiring warehouses near major population centers the need for middle mile services position to remain strong.

On the supply side of the equation trucking capacity is being kept in check by an industry wide shortage of qualified drivers and dock workers.

We are working diligently to meet our customers' needs, while making sure the optimum level of freight is flowing through our network and such a tight capacity market. It is also imperative to ensure pricing reflects the demand for the service. We provide our strategy is to grow the business. However in the near term.

We are leaning into yield growth over tonnage growth to help manage through the industry wide shortage of drivers and near term purchase transportation headwinds.

Verbal year over year pricing trends have carried into Q3, but the month of July yellow average between 11 and 12% on contract negotiations.

We are executing key steps in our transformation to 1 yellow during the second quarter read always bargaining unit employees voted to enter into the National Master freight agreement joining the rest of our operating companies all of our bargaining unit employees are now aligned with the N Mfa's March 'twenty.

24 exploration at.

Fully integrated 1 yellow network and streamline the flow of information for operations sales customer service human resources maintenance and in cab technology.

We are also making significant progress on our 2021 capital expenditures plan with the acquisition of more than 800 tractors 2200 trailers and 400 containers. During the first half of the year not only are these investments having a positive impact on the age of our fleet.

But over time, we expect them to mitigate maintenance expands and help our sustainability efforts through enhanced safety and improved fuel efficiency as we onboard the new equipment is being branded with the yellow name and conjunction with our transformation. We've also rebranded over 10000 piece.

As of existing equipment with the yellow brand.

Turning to the American Rescue Plan Act of 2021, it was signed into law earlier this year to strengthen eligible multi employer pension plans that are severely underfunded and to substantially mitigate their unfunded liabilities through 'twenty 51, the 120 day rulemaking period concur.

<unk> in July and the PBGC issued interim final regulations. The regulations provide pension plans guidance on the application process along with a timeline through 2023, when they can apply primarily dependent upon their funded status the act and the <unk>.

<unk> provides will protect the hard earned benefits of retirees from many companies and many industries, including members of the yellow team.

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

Thank you Darren and good afternoon, everyone for second quarter 2021, operating revenue was $1.3 1 billion compared to 1.02 billion in 2020 opt.

Operating income of $27 million compared to an operating loss of $4.6 million in the prior year, which included a 6 million net gain on property sale.

Adjusted EBITDA for the second quarter, 2021 was $82.9 million compared to $37.9 million in the second quarter 2020.

Adjusted EBITDA for the last 12 months was $216 million as of the end of the second quarter.

And as a result of having crossed over $200 million and LTM. Adjusted EBITDA, we are no longer required to maintain a minimum $125 million of liquidity.

Our revenue for the second quarter reflected year over year LCL tonnage per day growth of 8.3% in <unk> weight per shipment was down 0.4%.

Sequential <unk> tonnage per day trends compared to the prior year were as follows.

<unk> up 23, 7% may up 8.9% in June down 3.3%.

On a preliminary basis July <unk> tonnage per work day was down between 5 and 6%.

Including fuel surcharge second quarter <unk> revenue per hundredweight was up 16, 2% and <unk> revenue per shipment was up 15, 8% compared to the prior year.

Excluding fuel surcharge <unk> revenue per hundredweight was up 12% and <unk> revenue per shipment was up 11, 6%.

Total liquidity at the end of the second quarter was $423 million compared to $303 million at the end of the second quarter 2020.

And total capital expenditures for the second quarter were $144 million compared to $12 million a year ago.

Driven by our strong liquidity position, we are narrowing our 2021 capital expenditures guidance from a range of $450 million to $550 million to a range of $480 million to $530 million.

In addition to the more than 800 tractors and 2200 trailers added through June.

We expect to add an additional 300, plus tractors and 400 plus trailers by the end of the third quarter.

Next a brief update on U S Treasury tranche B loan.

As of the end of the second quarter, we had drawn down $381 million and in July we received the remaining $19 million.

All $400 million of the tranche B loan has now been drawn.

<unk> expenses were still elevated due to strong demand and tight capacity.

However, we reduced PT as a percentage of revenue from 16, 7% in Q1 to 16.0% in Q2, and we expect continued improvement in the back half of the year.

With that I will turn the call over to Darren.

Thank you Dan and good afternoon, everyone.

During last quarter's earnings call.

Share my initial priorities as the new president of yellow.

With my first full quarter in this role behind me.

I'd like to provide some additional color and an update on these priorities.

The first priority is to consistently meet our customers' expectations.

While we are not where I expect us to ultimately be on a consistent basis by.

By executing our yield strategy, we are carefully managing the volume of freight in our network.

This allows the network to operate more efficiently, particularly in high volume lanes.

As we complete the optimization of our network on our journey to 1 yellow I am confident that we will be in position to grow the volume running through the network.

Bill meeting our customers' expectations.

Transforming such a large company does not happen overnight.

But I am pleased that our company and dedicated employees were recognized recently with multiple carrier of the year awards from customers, including Walmart and DHL.

The second priority is to successfully execute our hiring and retention strategies.

We continue to focus on a multi pronged approach in this area.

Our driver Academy site expansion is well underway.

We currently have 16 fixed locations across the U S.

With additional mobile academies that can support targeted hiring efforts.

Applicants into the program have more than doubled in the past quarter.

We are committed to growing our own safe drivers, both now and into the future.

In addition, our recruitment strategies continue to evolve as we have bolstered our staff and advertising spend to support demand.

The third priority is to complete the enterprise transformation to 1 yellow as planned in 2022.

As we continue our journey to 1 yellow, we're laying the groundwork for success by strategically aligning our teams.

Optimizing the network and moving all brands to 1 technology platform.

We will enhance our service by getting faster.

Adding more next day lanes and offering regional service in new locations.

From the journey is complete we will go to market as 1 yellow.

Superregional carrier laser focused on meeting the needs of our customers and growing our business.

As we have previously indicated during the first half of the year, we expected higher purchase transportation expense.

Due to the necessary use of local cartage and over the road purchase transportation.

Both of which are more expensive in such a tight capacity environment.

Our yield strategy is helping us manage these headwinds and we have taken actions to reduce purchase transportation and short term rental expenses going forward.

These actions include purging the network of short term rentals as we acquire new revenue equipment and adjusting our line haul network.

To minimize the use of more expensive purchase transportation in certain lanes.

As you heard from Dan we expect to see improvement in this area as we move forward.

In closing.

I am proud of our employees and the progress we are making.

It takes determination and grit to transform our company while also meeting the needs of our customers in such a strong freight environment.

Plenty of work and opportunities are ahead of us.

And our team of dedicated break professionals are committed to delivering on the vision.

Of 1 yellow.

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

Thank you Darryl during Q2, we executed our yield strategy and I am encouraged by what we see ahead of us in terms of ongoing LPL freight demand and our ability to improve the company and its financial results with our journey to 1 yellow progressing as expected and the tremendous.

This amount of revenue equipment, we are acquiring my expectations for our team and for yellow remain high.

I am confident the company will continue showing progress and that we are well positioned for the future.

Also thankful for the dedication of our employees and the continued loyalty of our customers as we manage through the constraints of the North American supply chain. Thanks for your time. This afternoon, we would now be happy to answer any questions that you may have.

We will now move into the question and answer section of today's call I'd like to introduce the first question for today and that will be Jack Atkins with Stephens. Please go ahead.

Okay, great good afternoon, and congratulations on good progress here in this quarter guys.

So Dan if I could maybe start with you you referenced.

So the first question, yes that was just that <unk> tonnage per day, but thats materially in line with our total as well okay.

Historically tonnage per day from Q1 to Q2 increases to 25% to 6% and of course this year as a result of executing our yield strategy or the sequential tonnage per day was only up around 1%.

<unk>.

Tonnage per day on a historical basis is about 2% lower than Q2.

I wouldn't think that would be too far outside of that range as we continue to execute and execute our yield strategy. Okay. So from what I'm hearing you say theyre, Dan It sounds like Youre expecting things to maybe follow normal seasonality as we move through the through the third quarter from a from a topline of tonnage perspective.

When we think about sort of the.

The tonnage decline in June what type of rate, where you guys kind of focusing on purging from the network can you maybe talk about that just from 1 or was that more TL rated freight that was sort of living in the network and you just kind of what what are you looking to maybe.

Avoid from a freight perspective in June and July.

Jack This is Darren and we focused on the large corporate accounts.

From that level of business that we would normally do but on the corporate side was where the real focus was at and I'm, just very comfortable with the yield strategy, where just sound and strong in that area I like the direction, we're going we're focused on profitability and the volume equation will look into that net.

Asked year right now we're focused on our network our people and our profitability.

Net yield strategy will remain that way and when you say, 11%, 12% increases in contract renewals that continued into July we're going to keep our foot on the gas in that area. Okay. No that makes total sense and then I guess as we're just thinking about bottomline seasonality typically operating ratio.

Deteriorate slightly <unk>.

With a focus on yields improved PT as a percentage of revenue I think thats. The plan as we move through the balance of the year, new equipment coming in I'm not asking for guidance, but would you expect to maybe do a bit better than normal seasonality just given those those tailwind sequentially.

You haven't quantified before Dan answers. The specific question you asked I do want to quantify where some areas of improvement.

Will occur in Q3, especially around purchase transportation.

Since we're on the subject.

I believe and based on what we've seen in the recent weeks.

That and then he can answer your <unk> question and Darryl can follow it up with 1 of the hiring basis go ahead, Dan Yeah, I'll start with the purchase transportation cost Jack total PC for the.

Quarter was up $84 million year over year $16 million of that came from.

Revenue generating PT, that's associated with the growth in our logistics division our over the road PT was up $28 million.

Rail was up $21 million and local cartage was up $15 million.

As I've mentioned in my prepared remarks, <unk> expenses are still elevated due to the strong demand and tight capacity, but we did reduce PC as a percentage of revenue from 16, 7% in Q1 to 16% in Q2, and we do expect continued improvement in net back half of the year.

Lastly on that I will say I want to point out that our total swerve NPT combined in the second quarter was 73% of revenue.

Which is down from 77% in Q1 and down from 76% in Q2 of last year.

As far as margin you brought up a good point sequentially on a historical basis. We are operating ratio increases slightly from Q2 to Q3, but with the continued strong focus on yield our continued investment in the new equipment I expect to have a chance to perform better than that historical trend.

Okay. That's great that's very encouraging Dan. Thank you and I think that's great to hear so I guess, maybe last question from me and I'll turn the floor over but.

I guess for for Darren or Daryl if you could maybe talk about as we look forward into 2022.

And the completion of.

The network integration for 1 yellow.

Getting all 4 operating companies on 1 system can you maybe talk for a minute about what that's going to unlock for you in terms of operating efficiencies not asking for you to quantify a number but just maybe kind of help us think about.

Will we begin to really see those operating efficiencies show up pretty quickly once once that once that 1 yellow.

Our initiative is really complete.

Jack with the steady progress, we're making on 1 yellow as I mentioned, having 2 of the companies on the technology. The third 1 moving over right now and then the force 1 coming on at the end of the year, we're in a position where the rest of the completion of the railway contract removes the last barrier that contract now has the same X.

<unk>.

Superregional carrier, we can provide that 1.2 and 3 day service.

And to actually expand and grow market share. That's why I made the comments on tonnage not worried about that area of the business day.

During this segment of Q3 and Q4, we're focused on pricing will continue to do that and then the tonnage piece will come 1 more 1 yellow and we're bringing that value to the marketplace that justifies strong yield and strong tonnage growth at the same time, it's an exciting time and we're or per.

<unk> of what we're doing around 1 yellow.

Okay, great. Thank you for the time this afternoon guys.

Thank you Jack.

And our next question will come from Scott Group with Wolfe Research. Please go ahead.

Hey, Thanks afternoon, guys. So I just wanted to follow up on the operating ratio.

Other 2 union cash.

<unk> or both.

I guess.

Sub 90, or 99% up 90 hours this quarter.

I know you said, it should be a little bit better than or something better than normal seasonality in third quarter, but.

Anything more you can give us in terms of where these where do you think these margins can go in the near term.

In the back half.

To drive purchase transportation in the right direction.

Largest investments from a capex pace half a billion dollars this year into equipment and others and then the steady progress on 1 yellow that I just talked about and then you back all of that up with a strong liquidity position of over 400 million. This company is in.

In an excellent spot during an excellent market to move in the right direction and that staircase of improvement I talked about we are well positioned for that not guiding around 2022, but I am trying to demonstrate that each quarter. We're going to continue this level of improvement while retooling the company.

To compete as a super regional carrier and that we have the wherewithal to see that strategy all the way through.

Okay.

Can you give us an update.

Where we are in terms of terminals today, and where we are.

We're complete with the 1 yellow integration, where do you think we're going to end up.

Right now we're at 322.

There is not going to be a dramatic change in that number between now and the end of the year, we will land somewhere around 310.

North of 300, probably in the <unk> 10 range and that will play out over the next 2 or 3 quarters.

What do you think about other overhead things like.

Be it people or other parts of overhead.

What are the opportunities there.

Well certainly when you look at our holding company that was designed to support 4 separate companies, there's lots of opportunity in that area as we transition to 1 yellow, but I'd like Darren to talk about some recent trends we've seen and also this area around purchase transportation that Dan gave the percentage of zone, but Darryl I'll make a few comments.

Around your plans in that area.

Yes, thanks, Darren so Scott in that area I mean, obviously, our primary focus from Q2 and then ongoing in Q3 is really about.

Trolling, the PT expense that got away from us in Q1, and we've been very aggressive about returning short term rental equipment of course targeted hiring and locations, where we were seeing high levels of PT and then Dara has already mentioned the whole component.

With the yield piece that we're utilizing to throttle that to ensure that those costs remain in check I guess, what gets me excited is more about the future and where we're going when we become 1 yellow you talk about the fact that being on 1 technology haven't been in this job for 4 months now I can tell you. There is a lot of hoops to jump through inside of the organization.

Asian, when you're on multiple pieces of technology and so when you combine the integration of the network along with being on 1 platform. The synergies that are created the operational efficiencies that are driven than as you mentioned and the opportunities with overhead are pretty clear to be seen and so right now we're balancing the.

The efforts to transform our business with this strong demand environment that we're in and really focused on the fundamentals along the way.

And I guess, what I'm trying to get out like put the PT issue aside that will ebb and flow with with.

But the cycle I'm just trying to is the overhead is this a $100 million opportunity $500 million opportunity.

A smaller number.

Not really sure how to think about it.

We've.

With the position that this is a show me story in each quarter when I talk about a staircase of financial improvement on our path to profitability and our path to 1 yellow.

Trying to lay out each piece of the equation and give adequate information on the equipment that's coming in the actions, we're taking but we're still not prepared to give guidance.

Do you think you've realized any overhead savings yet through this process.

Yes, absolutely on the sales side of the equation, our commercial division, we've seen a very streamlined approach. It is happening in our pricing group as well now that we've brought that group together.

From a human resource standpoint, the human resource Department, and then also as it moves through maintenance.

The corporate structure overall, it's efficiencies that are being gained and will continue to capture those.

Okay Alright. Thank you guys. Appreciate it thank you Scott.

And our next question will come from Jeff Kauffman with vertical research partners. Please go ahead.

Thank you very much congratulations on the progress.

Just a couple quick things can we go back through that purchase transportation discussion I don't write as fast as I would like to.

It started with you talked about <unk> being up 84 million of net new deducted I think with BT that.

Related to.

I don't know if there was a logistics business and then you talked about the OTR increase the intermodal and the.

Cartage can can I just go through that math again.

Yes, Jeff this is Dan.

So, yes, youre right on $84 million year over year in total the revenue generating PBT was up $16 million, that's tied to our logistics division.

<unk> was up $28 million.

Rail was up $21 million in.

And local cartage was up 15 million 1.5.

Okay. So you talked about the progression from 16, 7% in the first quarter.

I guess the way I think about it is when you get this right.

Should.

And that percentage fee and is the issue here that you were caught short of people and you had to go out and purchase in the market at higher prices or that you have the right amount of people and you're engaging in normal PT. It's just the market prices are so hi, Geoff this is Darren.

$1 million rail very comfortable there the $15 million in local cartage.

That's an area that we can impact with our box truck operation and also we've seen some nice success in local city pickup and delivery hiring that will continue to bring that down to optimize and go to the point that you ask what would be ideal. So a portion of over the road portion of Ray.

Bill is a very good mixture for us and what would be ideal right. Now is for us to have more line haul drivers, we're making nice progress in city operations, we're still short on the over the road drivers and we're using purchased transportation in lanes that we would rather not so through the hiring initiatives and my comment.

About the American worker coming off the bench Daryl and his recruiting team has seen some nice additions over the last 2 to 3 weeks and even though that doesn't do anything on the overall capacity equation for us what it does do is we continue to expand this line haul driver piece, where we can move away from some of the more expensive <unk>.

So that percentage would be down 3 or 4 points total on revenue, but as long as we're using contractual PT in the right lanes and fully utilizing the rail that aligns with our service commitments.

I would be very pleased with that pace and that's what we're working toward.

It was a great answer thank you 1 follow up.

Not to be critical I apologize it comes off that way, but.

With 16% yield improvement on an 8% tonnage growth I would've thought.

That the incremental margins would have been a little stronger I think PT was part of it but when I went back and look the increase in labor expense.

Did seem to be a little bit more than I would've guessed, given kind of 8% to 9% shipment and tonnage growth.

So I just wanted to know if there were some special items in there or are you just trying to hire and get ahead of things.

Just seemed a little bit higher than I would've expected. So can you help me understand that.

2 pieces 1 is a training pace, we've got a lot of new employees coming in and their experience levels requires training mentoring.

<unk> all of these people bring tremendous value to the organization, but over time, they will be redeployed into pure.

Okay. So there's another point I guess end of day is if I look out to say a year from now.

Let's just say the market is exactly where it is today that indeed once.

The singular system is employed at the company I want some of those training and expenses done there could be 345 hundred points of revenue that we pick up over time.

As I mentioned with Scott Im not willing to go into the area of guidance, but what I am willing to say and I made this comment in my script.

High expectations for this team and I have expectations that the.

The system and the 1 yellow will be much sooner than the timeframe you just mentioned and that those benefits will be normalizing. We're aggressive we're serious about this mission and.

We're going to bring that value to our customers quickly.

We wouldn't be doing our job if we didn't ask so thank you for your answers and congratulations hi, Thank you for the coverage.

And our next question will come from Bruce Chan with Stifel. Please go ahead.

Hey, good afternoon, gentlemen, thanks for your time.

Couple of questions here for you the first 1 a little bit more on the housekeeping side.

Dan you gave us some of the sequential monthly trends.

On the tonnage side.

I may have missed it but did you give a progression for yield by months and if not would you be able to do so.

I did not and we typically don't give what the sequential youll changes or through the quarter, but what I will say is that yield on a year over year basis was accelerating through the quarter.

Darren mentioned july's.

Contractual renewals were north of 11% and when I think about Q2 on average what kind of average around 10%. So we still continue to see momentum there.

Okay, Great. That's really helpful. And then second question.

Maybe a little bit more thematic.

On service levels and claims ratios.

I don't need any hard numbers of course, but maybe you can speak to some of the sequential experience there, especially as you start out to rollout some of the shiny new equipment.

At opening up some opportunities for you to take pricing up even further.

I'll start with that Bruce and I appreciate you being on the call today also and I'll, let Darren will make any comments as well.

The entire industry right now the entire North American supply chain is still in crisis with customers.

Really being positive about a carrier being able to pick up the freight service is a challenge across the industry. We see it on the larger accounts, where services displayed by carrier and each carrier is really focused on their network keeping an efficient and also protecting it from those log jam.

<unk> that are created when we get to overcapacity.

Anytime there is a lot of re handle than claims can be an opportunity. We've been very consistent on claims over a long period of time, there's always room for improvement the all of the new trailers that were purchasing will certainly play well in that arena, we haven't talked about that enough because the tractor.

Or is there such a big return the trailers, Brian very nice ROI with them as well and also benefit benefit to customers in a positive way. So all green shoots in that area for the company Daryl anything you'd like to add there.

Yes, first I would just say, we're obviously experiencing some constraints in certain markets as all of the carriers are right now due to tighter capacity in the employee availability Pete very encouraged by the the last 3 weeks of hiring the best hiring numbers that we've seen in the last all year here in the last 3 week, particularly around dock workers and drivers and the <unk>.

City operations and what that does force is it really helps us keep the net we're more on track and fluidity within the network that allows us to reduce re handle reduced overtime reduce these things that would create inefficiencies, particularly might drive claims in the wrong direction and so we haven't seen inflation there.

Our claims number we have seen our service numbers have been challenge when compared to a normal environment and so our main focus is a high level of communication with our customers. So that they understand where our pinch points are but then more importantly, providing them the much needed capacity that they badly need in this environment.

With our nationwide network and so service is 1 we're going to continue to work through and that's why we're utilizing the yield lever as necessary to make sure that we can meet our customers' expectation.

Okay, great thanks for that color.

Sure.

And this will conclude our question and answer session I would like to turn the conference back over to the company for any closing remarks.

Thank you and this now concludes today's call. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Q2 2021 Yellow Corp Earnings Call

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