Q1 2022 Yellow Corp Earnings Call

May 10, 2022

Good afternoon, and welcome to Yellow Corporation first quarter 2022 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 first quarter 2022 earnings conference call.

Joining us on the call today, Darren Hawkins, Chief Executive Officer, Dan <unk>, Chief Financial Officer, and Daryl Harris, President and 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 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.

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

Actual 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 my yellow dot com.

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 original release.

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.

Q1, we continued our steady staircase financial improvement and reported our best first quarter adjusted EBITDA and they asked first quarter operating income excluding property disposals since 2016.

In addition, as of the end of Q1, the last 12 months adjusted EBITDA has doubled compared to a year ago.

Demand for LPL capacity has kept the pricing environment is strong and Q1 year over year <unk> revenue per hundred weight, including fuel increased 35% and favorable pricing trends have carried into Q2.

The month of April yellow average between 10 and 11% on contract negotiations as mentioned on our Q4 2021 earnings call. We started seeing a rapid increase in COVID-19 cases, among our employees on the final weeks of December that carried into the first.

For this.

The spike in cases, along with adverse winter weather pushed our network out of cycle, which led us to take actions in February to limit terminal operations Thats led markets that lasted a few days.

The percentage decline in year over year LCL tonnage per work day peaked in February and April have returned to a level more in line with internal expectations as we transform the network to operate as a super regional carrier, we expect it to be more agile and recover more.

Our quickly from extreme weather events, we also fully expect to return to growing LCL tonnage per day.

The transformation of our company continues and with the conversion to the one yellow technology platform behind US our focus has turned to immigrating. The line haul network to support both regional and long haul service as well as the optimization of pickup and delivery operations, we are managing the.

Our network transformation in the same manner as the technology transformation.

With a careful well thought out plan to minimize execution risk and to apply lessons learned as we move from one phase to the next you'll hear more about this from there.

Demand for LDL capacity still appears to be strong with inventory levels remaining below normal and the manufacturing sector played catch up from supply chain disruptions and the tight labor market with a significant capital expenditure investments made in recent years and the progress.

We are making on the transformation into one yellow we believe we are well positioned for 2022.

Once the network transformation is complete we expect improved asset utilization enhanced network efficiencies cost savings and added capacity without the need to add new terms, we will be operating as a modernized superregional carrier that will provide our customers with.

All in one solution.

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

Thank you Darren and good afternoon, everyone for first quarter 2022 operating revenue was <unk>, two 6 billion compared to $1 2 billion in 2021 operating.

Net income was $9 2 million, including $5 5 million net gain on property disposals compared to an operating loss of $27 6 million in the prior year, which included a 1 million net loss on property disposals.

Adjusted EBITDA for the first quarter 2022 was $52 million compared to $13 2 million in 2021.

Adjusted EBITDA for the last 12 months was $341 4 million as of the end of the first quarter compared to $171 million a year ago.

Our revenue growth of five 2% in the first quarter compared to a year ago reflects continued strong yield performance and higher fuel surcharge revenue, partially offset by lower volume.

Including fuel surcharge first quarter <unk> revenue per hundredweight was up 35% and <unk> revenue per shipment was up 24, 8% compared to a year ago.

Excluding fuel surcharge LCL revenue per hundredweight was up 22% and <unk> revenue per shipment was up 16, 7%.

LCL tonnage per day in the first quarter was down 21% driven by a 16, 5% decrease in LCL shipments per day, and a four 3% decrease in <unk> weight per shipment.

Sequential LCL tonnage per day trends compared to the prior year, whereas followed.

January is down 15, 9% February down 27, 4% in March down 17, 8%.

On a preliminary basis April LCL tonnage per workday was down between 14% to 15% compared to last year.

Total capital expenditures for the first quarter were $36 4 million compared to $202 4 million a year ago.

Our full year 2022 guidance for capital expenditures remains $325 million to $400 million. However, as a result of continued supply chain disruption and production capacity for tractors and trailers, we will likely be near the lower end of this range.

Turning to hourly wages and mileage rates for our Union employees for 2022, our National Master freight agreement includes contractual wage increases of 40 <unk> per hour and one cent per mile on both April one and October one.

In addition, the contract also includes the cost of living allowance clause, which provides for an additional increase effective on April one of each year based on the year over year change in the consumer price index published in January .

Just on this year's measurement, our union employees qualify for a cost of living adjustment of <unk> 60 per hour and one five cents per mile resulting in a total April 1st wage increase of $1 per hour and $2.05 per mile for.

For full year 2022, we expect our total union wage and benefits to increase by approximately 5%.

And finally in February standard and Poor's upgraded yellows issuer credit rating to BB minus based on our improved operating performance and the progress we are making as we execute our one yellow strategy.

This follows an upgrade to <unk> from Moody's investors service in December .

I will now turn the call over to Darryl.

Thank you Dan and good afternoon, everyone.

While the first two months of the quarter presented some unique challenges.

I am proud of our employees for finishing on a strong note in March to partially offset the challenges we encountered.

Turning to our one yellow transformation, we will complete the transition to a superregional carrier around the end of the year in three phases.

We have completed the planning and analysis of the first phase to integrate our line haul network and our pickup and delivery operations.

We expect phase one to be implemented this summer in the western part of the U S, which has the lowest execution risk profile.

This will include the optimization of 89 legacy wire sea freight and <unk> terminals.

We will apply lessons learned during the remaining phases.

It is very similar to how we recently executed our successful transition onto a single technology platform.

We expect the remaining phases to be implemented in the second half of 2022 with phase two occurring in the northeast and Midwest.

Positively impacting approximately half of our terminals.

Phase III will be the final phase.

Impacting the southeast and Central U S.

We look forward to providing you with updates on how the transformation is progressing.

On our second quarter earnings call.

As we transform the network to operate as a super regional carrier.

We are integrating the line haul network to support both regional and long haul service as well as optimizing our pickup and delivery operations to eliminate redundancy.

When completed the line haul optimization efforts will help drive speed efficiency and consistency in our network.

The city pickup and delivery optimization efforts will eliminate the overlapping coverage that currently exists between brands and.

And we will have one yellow driver interacting with our customers for both regional and long haul services.

Overall, we expect the network transformation to enhance customer service.

Lead to greater efficiencies and cost savings and create capacity in the network.

As an added benefit operating as a super regional carrier will promote fluidity and consistency in the network that will allow us to mitigate some of the negative impact of winter weather in the future.

We continue to place a priority on recruiting.

And in March we opened yellows 17 truck driving Academy in Carlisle, Pennsylvania to.

To help reach our goal of training one new drivers in 2022.

Our academy is provide career opportunities with good jobs and competitive benefits, while strengthening our partnership with the U S Department of Labor's apprenticeship program.

Yellow is more than 30000 employees are the most important asset that we have and we plan to continue recruiting drivers mechanics and dock workers to join our team.

In closing we remain pleased with our progress.

But not satisfied with our results the.

The yellow team managed through a challenging first quarter and stay focused on safely meeting the needs of our customers.

I am more excited at each day about the path ahead.

And what one yellow will mean for our customers employees and shareholders.

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

Thank you Darryl the yellow team continues to make progress in positioning the company to successfully complete the transformation to one yellow I am great.

Grateful and proud for the efforts of our employees, who provide a central freight transportation services to our customers and our communities. Thanks for your time. This afternoon, we would now be happy to answer any questions that you may have.

Our first question comes from Jack Atkins of Stephens. Please go ahead.

Okay, great. Good afternoon, everybody. Thank you for taking my questions.

Yes.

So I guess maybe.

Maybe if we could start I guess.

As you guys begin to implement.

The network changes in the west over the next few months.

I guess, how quickly would you expect those savings to begin to materialize in <unk> results and maybe if you can help us think about I know you don't want to quantify it I'm not going to ask you too Mike.

What buckets on the P&L do you think will be the most impacted by it any way to kind of think through that and would you expect those savings to be noticeable in the second quarter or will it really be the third quarter before we start to see that.

Jack This is darrin I'll start with that and then let Daryl take it from there. The good news is all through the one yellow transformation, we don't have to wait on it to be can play to see financial improvement just like this being the fourth quarter in a row that we've delivered improving.

Salt that's going to continue while this is in progress when I think about Q2, specifically the strong March we just had our sequential improvement in Q2, I believe will outpace what you've seen from our company in the past.

The good news is with this optimization in front of us it not only allows us to create more capacity for our customers, but to be more efficient doing it and two of our largest cost buckets.

Any pickup and delivery operation in the line haul operation and then I'll, let Daryl speak to those.

Good afternoon, Jack Yes, as we mentioned in the script. This impacts 89 of our terminals out west or 28% of the overall network.

So some of these costs.

Savings that you can obviously imagine would be near immediate facility related cost operational management synergies.

The reduction in pickup and delivery routes and the optimization of such.

Those are near immediate we expect those savings to start coming on board right away to Darren point, certainly line haul and pickup and delivery are the top two cost.

Now <unk> trucking environment. So we're excited that the optimization here is going to impact those in each and every phase also the reduction in line haul schedules that may take a little bit longer as the entire network gets impacted with the optimization component, but that is a huge component of this as well as we start to bring everything together.

Other under one yellow.

Okay.

As encouraging so we're going to start to really.

We began to see the rubber hitting the road here.

This quarter and then accelerating I guess as we go through the year.

I guess, maybe just so we're all on the same page in terms of.

Historical sequential trends Dan.

In the past, we've seen 400 basis points or so of sequential improvement is that.

Is that the the.

The baseline that we should be expecting results to be better than or I, just want to make sure. We're all on the same page there.

Yes, Jack good question.

First as Darren commented, let me firstly I am pleased that for the fourth straight quarter, we had an improved operating ratio over the prior year.

You called out.

Historically from Q1 to Q2, we do see about a 350 to 400 basis point of improvement there.

In my opening comments I did mention the 60% per hour cost of living wage adjustments at our union employees qualified for which is over and above the normal wage increase and that went into effect on April one and.

And we expect the impact of that to be roughly 40% to 50 basis point headwind from an or perspective, but even with that we expect that we can outperform that historical sequential or improvement.

Okay, No that's fair.

Very encouraging to hear very encouraging to hear so yes.

I guess shifting shifting gears, a bit and kind of taking a step back I mean.

Obviously, everyone was sort of experiencing the COVID-19 related challenges in January and February and weather.

As you guys look forward and once the one yellow integration is complete I guess, what specifically about the network will be different which will maybe make the network less susceptible to some of the shocks that we've seen from time to time in the past.

Jack This is Dara and then you've got the right group to speak to that.

Worked in a super regional carrier format. So has Daryl and so I'll have Dan we're all very familiar with the network that we're becoming and because of that winter weather effects. All LPL companies. The same when it's happening it's the recovery period that a super regional carrier.

Can put together quickly quicker than a hub and spoke system like the heritage network operated at <unk> freight. So when we talk about one yellow we're talking about a network that actually will complete and come to finality on the weekend and then restock.

After weather events, you can actually reset the network in a matter of weeks, where in our case, depending on the length of the weather event that happens that can sometimes take several weeks, even a month to recover and lead to what we had to do in February by limiting operations for a few days to allow our network to reset the great.

Using that worked we recovered nicely in March our network is fluid and operating well in April . However, you saw the tonnage decline that we took in February because of that but Fortunately at peak and we return to a more normalized place from a tonnage standpoint. After we took that action.

But we will be able to respond to those events quicker than we have been in the past the other piece that I would like to address on the one yellow changes in the west that narrow speaking to those actually implemented in the summer. So when you were referencing you mentioned Q2, but that will be Q3 opportunity.

These around the western changes, okay, no that makes sense. Thanks for that thanks for that clarification, I guess in Arkansas, It already feels like summer so I'm I'm already var.

He answered the same as it is.

Same in Nashville, as well okay great.

Last question I'll turn it over to somebody else, but when we think about the trends that you saw in April .

Is there any way to kind of think about tonnage trends relative to normal seasonal patterns.

Theres, an awful lot of concern out there about.

Just the freight economy in general and perhaps maybe seeing some signs of slowing in certain places.

Would you say that April was in line with better than worse than normal seasonality.

Any way to kind of help us think about that and what are your customers telling you about.

Their expectations as we move through the remainder of the year.

Jack This is Darren again, so the encouraging part about April as the 10% to 11% contractual price increases so when Dan mentioned that we were down 14% to 15% in tonnage when I've got contractual price increases that are in double digits like that I'm very comfortable.

In that range I do think that balances over time, we're bringing a much stronger value proposition to the market starting at the beginning of Q3 and Thats. The one yellow plan. All along is that we will grow tonnage at this company, but we will do it profitably on the second half of your question about the overall.

All outlook and what we're seeing from an industrial demand standpoint things are firm.

Our company like most <unk> companies, we have a larger exposure to the industrial side, but on the interesting note, even though our percentage of business is larger on the industrial side, our largest customers are actually in the retail and home improvement sectors and when you look at what's happening there. We're also seeing.

Strong demand so I believe we're in a good position on our contractual business to go through the summer and I'll, let Dan add anything that I might have left out on that yes, I would just say Jack that on a sequential basis. Historically from March to April we usually are about flat from a tonnage per day basis, but this year it was actually up 3%.

A little bit of that was still recovering from the actions. We took in February so as I look at the.

The entirety of Q2 I would expect that from April to March April and May that made in June that we would see our normal historical change, which is about 1% improvement in tonnage each of those two months.

Okay. Okay. That's super helpful. Thanks, again for the time guys.

Thank you Jack.

Yes.

Our next question comes from Bruce Chan of Stifel. Please go ahead.

Hi, Good afternoon. This is Matt on for Bruce Thanks for taking my questions.

Hello, Matt.

How's it going.

Could you guys provide.

Some details around your current fleet age where it stands perhaps maybe compared to a year or two ago.

And then as well maybe some of the key components underlying cap.

Capex guidance.

Yes.

Matt. This is Darren then we still don't disclose the fleet age, but from that aspect, what we've added and the percentage of tractors that we've added we brought it down by a couple of years I'll, let Dan.

Specifics that he can.

Yes, Darren mentioned, our tractor fleet age specifically would come down by about two and half years, a big improvement there, even though we don't share what the absolute aged.

Mentioned in my opening comments, the full year Capex guidance for this year still remains $325 million to $400 million.

But some of the disruptions in the supply chain have impacted production capacity, there, especially protracted and trailers as well as the lead times for production.

As a result of that will be at the lower end of that range. We continue to work closely with the Oems to keep updated on the supply chain and the impact it has on production timing specific to us.

It is still too early in the year to have a complete picture for the full year, but we should have a better view of that as we move through the second quarter and Matt. This is Darren again, what I'd like to add is one of the benefits of one yellow is we're going to increase our asset utilization dramatically as we make those changes not standing to tractors trailers to drivers to the <unk>.

The end customer and actually phrase our fleet. So even if we do see delays on for assets, bringing trailers into the network Daryl and his team have done a good job of keeping the rental cost down we will run some others longer if we need to but also we will free equipment.

Through the one yellow optimization efforts that will be entertained blade throughout Q3, and Q4, so I feel pretty good about where we're at and the way we're positioned around having the equipment, we need to take good care of our customers.

Excellent Super helpful.

I guess with respect to the one yellow timelines.

In light of the current environment.

How much of the planned change.

Broader market conditions really deteriorate meaningfully.

Yes. This is Darren again, it doesn't change the one yellow execution pace actually we are in an ideal market to be making these changes when we look at our tonnage decline that is why I say, we are well positioned to get the changes in place to create the efficiencies and to have that opportunity regard.

A list of the external economic conditions will stay on track because this is no longer a multiyear transformation like we were referring to last year. We're in the final year of it and we're going to wrap up to one yellow plan in 2022.

Operator.

<unk> Group Wolfe Research. Please go ahead.

Hi, Good afternoon. This is actually Aaron on for Scott. Thanks for taking the time today.

Hello Aaron.

Hi.

First can you give us an update on your terminal reduction plans what is the latest plan for the rest of the year. Thanks.

Certainly we're at 316 terminal today, as we speak and the changes we're making in the west we'll reduce that by nine.

Where we're going to land at the end of the year it'll be right around 300, plus or minus a few as we go through optimization, but I do want to add in that when you look at door count and I'll give you. An example, let's take the state of California, right now yellow has 33 total terminals.

In California, when we make these changes over the next several weeks that number in California will go from 33 to <unk> 28, So we will reduce it by five but from a dollar standpoint that will only be a 194 door reduction and we will still have over 1700.

<unk> available at those facilities in California, I, just want to make it clear that we're not giving up geographical coverage and we're also going to protect capacity for our customers because we do plan on growing when we complete one yellow.

Got it great. Thank you that was helpful and thank you for the color.

I guess as you look out for the rest of the year and given recent tonnage and yield trends Neil.

Yields have been pretty strong right now I guess moving forward as your focus here.

Q1 2022 Yellow Corp Earnings Call

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