Q2 2022 Yellow Corp Earnings Call

August 3, 2022

Good afternoon, everyone and welcome to yellow corporations second quarter 2022 earnings call.

All participants will be in a listen only mode.

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

Please note this event is being recorded.

At this time I would like to turn the conference call over to Tony Carreno.

And your vice President of Treasury and Investor Relations.

Please go ahead.

Thank you operator, and good afternoon, everyone welcome to yellow corporations second quarter 2022 earnings conference call.

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

Dan <unk> Chief Financial Officer.

Gerald 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 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.

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 10-Q.

These items are also available on our website.

Hello Dot com.

Additionally, please see today's release for a reconciliation of net income or 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 is available on our website.

I will now turn the call over to Derek.

Thanks, Tony and good afternoon, everyone. Thank you for joining our call and Q2 yellow achieved 93 operating ratio.

As nearly 500 basis point improvement compared to a year ago.

Operating income of $99 2 million was the highest quarterly result reported by the company since 2007 and as of the end of Q2 last 12 month's adjusted EBITDA exceeded 400 million, which is another milestone on our journey to one yellow.

We kept our focus on improving the quality and profitability of the freight moving through our network, which contributed to another quarter of strong yield performance on.

Going to band for LTE capacity has kept the pricing environment favorable in Q2 year over year <unk> revenue per hundredweight, including fuel increased 29, 7% and favorable pricing trends have carried into Q3.

But the month of July yellow averaged between six and 7% on contract negotiation.

<unk> tonnage per day was down 16, 4% in Q2 compared to a year ago, which was consistent with our internal expectations as we transform the network to operate as a super regional carrier, we fully expect to return to growing LCL tonnage per day our strategy.

<unk> mitigate incremental purchased transportation expense and as a percentage of revenue decreased by 170 basis points in the second quarter compared to a year ago, turning to the transformation. The one yellow we expect to execute phase one of our network integration that's phase one.

Impacts 89 legacy wire sheets, crate and barrel white terminals in the Western U S and will integrate the line haul network.

For both regional and long haul as well as the optimization of pickup and delivery operations. We plan to have the entire network transformation completed around the end of the year. We have made many significant changes to the company starting the transformation of the one yellow and we believe that we are.

Well position for the rest of 2022 and beyond.

Our liquidity remained strong and the significant capital expenditure investments made in recent years has lowered the average age of the tractor fleet by a couple of years. What is most exciting to me is in Q2, we delivered some of the best financial results at the company in several years and we believe there is more.

Opportunity to improve operationally and financially.

Once we complete the transformation to one yellow, we expect improved asset utilization and enhanced network efficiencies cost savings and added capacity without the need to add new terminal.

We will be operating as a modernized superregional carrier that will provide our customers with an all in one solution.

Thank you again for joining us today I will now turn the call over to Dan who will share additional details about the quarter.

Thank you Darren and good afternoon, everyone. Our second quarter 2022, operating revenue was $1 four 2 billion compared to $1 $31 billion in 2021.

Operating income was $99 $2 million, including a $3 2 million net gain on property disposals compared to operating income of $27 million in the prior year.

Adjusted EBITDA for the second quarter, 2022 was $145 9 million compared to $82 9 million in 2021.

Adjusted EBITDA for the last 12 months was $406 7 million as of the end of the second quarter compared to $216 million a year ago.

As a result of having achieved more than $400 million LTM adjusted EBITDA the borrowing cost on our term loan goes down by 100 basis points.

From LIBOR, plus 750 basis points to LIBOR, plus 650 basis points for as long as we remain above $400 million of LTM adjusted EBITDA.

Our revenue growth of eight 4% in the second quarter compared to a year ago reflects continued strong yield performance and higher fuel surcharge revenue, partially offset by lower volume.

Including fuel surcharge second quarter <unk> revenue per hundredweight was up 29, 7% and <unk> revenue per shipment was up 27, 8% compared to a year ago.

Excluding fuel surcharge LCL revenue per hundredweight was up 15, 3% and <unk> revenue per shipment was up 13, 7%.

LCL tonnage per day in the second quarter. It was down 16, 4% driven by a 15, 2% decrease in <unk> shipments per day, and a one 5% decrease in <unk> weight per shipment.

Sequential LCL tonnage per day trends compared to the prior year were as follows April down 17% may down 17, 2%.

June down 15, 1%.

On a preliminary basis July at LCL tonnage per workday was down approximately 17% compared to last year.

Total capital expenditures for the second quarter were $36 2 million compared to $143 8 million a year ago.

Total capital expenditures for the first six months were $72 6 million compared to $346 2 million for the first six months of 2021.

Due primarily to continued supply chain disruptions and limited production capacity available for tractors and trailers, we are lowering our full year 2022 capital expenditure guidance from a range of 325 to 400 million to a range of 250 million to $300.

I will now turn the call over to Darryl.

Thank you Dan and good afternoon, everyone.

As you heard from Darren our plan is to complete the transition to one yellow and to begin operating as a superregional carrier around the end of the year.

<unk>. One will include the optimization 89 legacy wire sea freight and read away terminals in the western part of the U S.

Which has the lowest execution risk profile.

Our plan to integrate the line haul network and our pickup and delivery operations in the west.

Is on scheduled to be implemented this summer.

We will apply lessons learned during the remaining phase.

As we transform the Dev work to operate as a superregional 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 redundant.

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.

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

Overall, we expect our network transformation to enhance customer service lead to greater efficiencies and cost savings, while creating additional capacity in the network.

Turning to hiring we remain committed to hiring and training. The next generation of safe professional drivers and we recently added four company sponsored driving the category.

In Columbus, Ohio, Tracy, California May.

<unk> broke New York <unk>.

In Detroit, Michigan.

This month, we also expect to open an academy in Albuquerque, New Mexico, bringing the total to 22.

These new academies should help us reach our goal of training 1000, new drivers this year.

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

Didn't close.

We are pleased with the results in the second quarter, but.

But we also know that there's much more opportunity that lies ahead.

I am confident that completing the journey to one yellow will provide an enhanced value proposition that.

That will be a positive for our customers employees and shareholders.

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

Thank you Daryl I am proud of our employees and their efforts to focus on our customers and the communities that they lay up.

Their hard work helped deliver solid results this quarter the transformation of one yellow puts the company in the best position possible to continue improving operationally and financially. Thanks for your time. This afternoon, we would now be happy to answer any questions that you may have.

And ladies and gentlemen, our first question today comes from Jack.

Atkins from Stephens. Please go ahead with your question.

Hey, Good afternoon, guys. This is Greg Smith on for Jack and Thanks for taking my question.

Good afternoon guys.

Hey, thanks.

I'll provide a little bit of an update on our July trends and how the month went relative to your expectations and maybe are you seeing any change in the pricing momentum in the market.

Grant this is darrin I'll start with the pricing momentum and let Dan comment on July trends from the script and others from a pricing momentum standpoint.

Good consistency good discipline in the <unk> industry as a whole we're pleased with our strategy.

What's developing from that.

So we've got a lot of confidence in what we see from a pricing momentum standpoint, I'll, let you comment on other lastpass, yeah. Good afternoon Grant as I covered in my prepared remarks, LCL tonnage per day on a year over year basis was down 16, 4% year over year for the quarter and preliminarily Joe.

Why was down roughly 17%.

On a sequential basis from June to July our tonnage per day was down between 3% to 4%, which is right in line with our historical trend. So.

So based on that from a tonnage perspective.

Absent any significant changes in broader economic demand, we would expect to see our normal historical sequential change in tonnage from Q2 to Q3.

Yeah, great. Thanks for that again looking at the third quarter can you help us think about how we should look at the sequential progression of operating ratio and what is that normal seasonality. It looked like and would you expect that to underperform or outperform seasonality this quarter.

Yeah sure first let me say that I am pleased that we were able to improve our operating ratio on a year over year basis for the fifth consecutive quarter. We did have $3 2 million of net gains on property disposals during the quarter.

Also had roughly $7 million of favorable adjustments to our insurance reserves related to work top and accident claims the.

The impact of those two items on the second quarter or was approximately 80 basis points. So excluding those the or would have been.

93 eight range.

Still would have been 410 basis points better than last year, and 550 basis points better than the first quarter.

So now as we move from Q2 to Q3, we historically see degradation in our or about 50 to 100 basis points.

I think with our jumping off point, if I think about that as being at 93, 8% that I just mentioned.

I would expect that our sequential change in or Q2 to Q3 to be in line again with our historical trends.

Got it and.

Last one probably for you Darren when you look across the hotel industry most public comps.

At least the high 80% or.

Many of the unionized peer that generates a mid eighties or clearly there are a lot of things that need to happen.

To be able to execute on our mid age or but when you think about what you are working towards your long term over multiple cycles is there any structural reasons why you can't ultimately get to.

Grant this is Darren and as we don't give guidance I will make some comments that one yellow and all that we've talked about was one yellow and the reasons for pursuing the Super regional network, rather than having a holding company and four separate brands start towards the custom.

It's what the customer wants from yellow and we know as long as we align with what the customer wants them all of those other pieces will go in the right direction band called it out five consecutive quarters of continuous financial improvement. That's what we've been talking about that's what we've been demonstrating and proving.

Along the way so to move in and to continue that improvement.

He is about one yellow and outlet Daryl <unk>, our president talk about some of the benefits that one yellow more brands. So go ahead.

Thank you and good afternoon grant as Darren mentioned.

When you think about one yellow the opportunity that we have in front of US is really around just better asset utilization and when I say there are opportunities to better utilize our facilities and our equipment and our human capital. When you think about all the redundancies that exist.

Still today under the yellow umbrella, we have four different fixed asset LCL trucking companies that are running or different pickup and delivery operations as well as the.

Or a different line haul networks and so we get really excited when we think about the opportunity for better asset utilization, but the Darren point also an improved value proposition that allows us to not only streamline our operations for greater efficiency to drive improved ore, but most importantly too.

Drive growth with our customers, who have been asking for streamlined solution like this.

For several years and so.

Many more great things to come as we work to bring these things together and we're certainly going to keep everyone focused and updated along the way as we continue the journey here.

Thank you guys and congrats on a great quarter.

Thank you Brad.

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

Everyone afternoon, and congrats on all the progress here.

Just.

You gave us some good color on the Capex puts and takes for the year, but maybe as we think a little bit longer term about where your fleet is in some of the rationalization that you can do in <unk> in the line haul network can you maybe help us to think about what your spend might need to be in order to get back towards a more kind of normal industry average fleet.

And when do you think that we will see that capex investment get back to a normal level.

Hey, good afternoon, Bruce this is Darren and I'll start with that one a big piece of one yellow is asset utilization and moving that in the right direction, where to tractors two trailers at the same customer as we eliminate those basis then certainly.

Our appetite for equipment will diminish over time because of the utilization will have on the newer equipment that we brought into the network and although we have improved it by two years I'll, let Dan comment.

On a capex basis, moving forward and what our thoughts are so go ahead Dan.

Long term. This is Bruce good afternoon, I think about Capex and really a lot of it is tied up in technology equipment and terminal infrastructure.

We have the luxury with our terminal infrastructure to be able to make all these changes that we're doing and have the capacity to grow without having to invest significant dollars in that.

I'll take that in consideration and it really comes down on the equipment side.

We made huge investments in 2021, which gives us the time and space now as Daryl execute transformation to evaluate where ultimately we need to land long term.

Thinking about in the aggregate we entered this year with guidance for 2022 of $325 million to $400 million range I would not expect that it would be too materially different from that.

On a long term basis as we go forward.

Okay.

Really helpful.

Maybe another one for you Dan.

As you think about where the debt is right now you're a bit over $1 5 billion.

And as you think about that.

Level of debts, and where you've come with EBITDA and then what might be happening here with the rate environment is there an opportunity to pursue a refinancing here.

Well, we've certainly made some progress in terms of improving our financial performance and as we've talked about growing into our capital structure.

As a result of that progress so far with the current cap structure of $1 6 billion or.

Our leverage ratio is now less than four times for the first time since 2019, when our total capital structure with just over $900 million.

That said.

Same with the operational changes that are still coming we still think with the maturity is not until 2024 that we still have some more room for improvement there and then I will give us even better options than what we still would have today.

Okay, Great and then maybe just a last quick one here.

As you think about converting the network via one yellow and some of the move from maybe a national footprint on a lane basis to more of a regional Super Regional one is there anything to think about as far as yield dynamics length of haul revenue per shipment.

That might affect how that top line looks.

Bruce This is Darren when we think about the Super regional phase, we're still going to have a significant transcontinental operation we'll have over 10 facility supporting the transcontinental operation just like we do today and what we will have is different than a shorter length of haul.

We will have a consistent service that aligns with the overall industry from a competitive standpoint, I will transit time as well.

About the network changes that are common.

Yellow is in an ideal position on yield and tonnage right now, especially when we think about the timing of the western changes happening in just a couple of weeks and then from that standpoint that all of the changes will be done by the end of the year that we've got the water line about just right on tonnage to make this go smoother.

And also we've got the top line on yield in a good position of strength and it's been a foundation that we're going to protect.

Bottom line, we know that giving the customer what they want will increase our revenue per shipment and when you think about our length of haul we've already got the mixture of the regional companies and that so I wouldn't think in terms of major changes to our length of haul over time, but I would think of terms and better.

Value for the customer and an improving revenue per shipment.

Okay, great well I appreciate that color and congrats again on the results.

Thank you Bruce.

Okay.

And our next question comes from Scott Group from Wolfe Research. Please go ahead with your question.

Hi, Good afternoon. This is Aaron on for Scott. Thanks for taking the time today and into my question.

Absolutely.

Great.

Yes.

You had a pretty large spread between gross and net fuel yields this quarter.

I guess I was hoping you could talk a little bit more about the impact of fuel in the quarter and just what youre seeing so far in <unk> and <unk>.

Yes, Aaron this is Dan so for the second quarter diesel prices were up roughly 70% compared to last year. So that resulted in our fuel surcharge revenue being up between 85% to 90% year over year.

So I mean, thats, what really drives that gap, including versus excluding fuel and of course as we've all seen that fuel prices have moderated a little bit over the past few weeks, but we're still so early into the quarter only having one month behind us it's hard to know exactly how the.

The full quarter will look like.

Got it thank you for that.

And then I guess just on terminal count I know in the last.

Earnings call you guys talked about being around like 300 terminals by year end is that still the plan and then I guess, if tonnage kind of stays where its at or can you.

<unk> do you see any potential to cut more terminals.

Aaron This is Darren we're currently at 316, when we execute the western changes.

Here in the next few weeks that will bring us down to 307, and then by the end of the year, we will be in the 300 range.

Yeah.

We have capacity for profitable freight right now.

We're going to protect that capacity, we're not going to give up geography and these changes so the terminal count could fluctuate around the 300 number plus or minus but it'll be in that ballpark. Once one yellow comes to full fruition.

Got it okay. Thank you and if I could just ask one more.

You noted that contractual renewals you are kind of trending now and link the six to seven.

<unk> percent year over year range, and I know I guess in April youre, seeing like 10% to 11%.

I guess are you seeing any sort of moderation in pricing.

So far into July now that you've kind of touched on this earlier, but I guess do you expect just general.

More stable pricing trends throughout the rest of the quarter.

Aaron This is Darren.

Contract renewals when we comment on those.

It's a bellwether around yield we've seen what our yield numbers are compared to those contract renewals, we've reported out on in the past and the yield par exceed those numbers as those contract renewals true taken.

Taking one months and especially a month like July .

The number of renewals we have there is.

They are spread somewhat evenly throughout the year, but taking any one month.

It's typically not the way to look at that I will say overall im very pleased with what our where our pricing that I am pleased with what I see from industry pricing and I still have a lot of confidence in our yield path for 2022 and beyond.

Great. Thank you I appreciate all the color thanks for the time.

Thank you.

And ladies and gentlemen, with that we'll be concluding today's question and answer session I'd like to turn the conference call back over to the company for any closing remarks.

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

And ladies and gentlemen that will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.

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Good afternoon, everyone and welcome to yellow corporations second quarter 2022 earnings call.

All participants will be in a listen only mode.

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

Please note this event is being recorded.

At this time I would like to turn the conference call over to Tony.

Senior Vice President of Treasury and Investor Relations.

Please go ahead.

Thank you operator, and good afternoon, everyone welcome to yellow corporations second quarter 2022 earnings conference call.

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

Dan <unk> Chief Financial Officer.

Gerald <unk>, 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 other statements that might be made on this call which are not historical facts.

Due 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 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.

Looking at our forms 10-K and 10-Q.

Items are also available on our website by yellow dot com.

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

In conjunction with today's earnings release, we issued a presentation, which may be referenced during the call.

Reputation was filed in an 8-K along with the earnings release is available on our website.

I will now turn the call over to Dan.

Thanks, Tony and good afternoon, everyone. Thank you for joining our call and Q2 yellow achieved 93 operating ratio, which is nearly 500 basis point improvement compared to a year ago opt.

Operating income of $99 2 million was the highest quarterly result reported by the company since 2007 and as of the end of Q2 last 12 months' adjusted EBITDA exceeded $400 million, which is another milestone on our journey to one yellow.

We.

We kept our focus on improving the quality and profitability of the freight moving through our network, which contributed to another quarter of strong yield performance.

<unk> demand for LPL capacity has kept the pricing environment favorable in Q2 year over year <unk> revenue per hundredweight, including fuel increased 29, 7% and favorable pricing trends have carried into Q3.

The month of July yellow average between six and 7% on contract negotiation.

LCL tonnage per day was down 16, 4% in Q2 compared to a year ago, which was consistent with our internal expectations as we transform the network to operate as a super regional carrier, we fully expect to return to growing LCL tonnage per day, our strat.

<unk> includes mitigating incremental purchase transportation expense.

And as a percentage of revenue decreased 150 basis points in the second quarter compared to a year ago.

Turning to the transformation of the one <unk> level, we expect to execute phase one of our network integration. This summer.

One impacts 89 legacy wire sheet right Red White terminals in the Western U S and will integrate the line haul network to support both regional and long haul as well as the optimization of pickup and delivery operations.

We plan to have the entire network transformation completed around the end of the year. We have made many significant changes to the company starting the transformation of the one yellow and we believe that we are well positioned for the rest of 2022 and beyond our.

Opportunity to improve operationally and financially once we complete the transformation to one yellow, we expect improved asset utilization and enhanced network efficiencies cost savings and added capacity without the need to add new terminal.

We will be operating as a modernized superregional carrier that will provide our customers with an all in one solution.

Thank you again for joining us today I will now turn the call over to Dan who will share additional details about the quarter.

Thank you Darren and good afternoon, everyone.

Our second quarter 2022, operating revenue was $1 four 2 billion.

<unk> to $1 $31 billion in 2021.

Operating income was $99 2 million, including a $3 2 million net gain on property disposals compared to operating income of $27 million in the prior year.

Adjusted EBITDA for the second quarter, 2022 was $145 9 million compared to $82 9 million in 2021.

Adjusted EBITDA for the last 12 months was $406 7 million as of the end of the second quarter compared to $216 million a year ago.

As a result of having achieved more than $400 million and LTM adjusted EBITDA the borrowing cost on our term loan goes down by 100 basis points.

From LIBOR, plus 750 basis points to LIBOR, plus 650 basis points.

As long as we remain above $400 million of LTM adjusted EBITDA.

Our revenue growth of eight 4% in the second quarter compared to a year ago reflects continued strong yield performance and higher fuel surcharge revenue, partially offset by lower volume.

Including fuel surcharge second quarter <unk> revenue per hundredweight was up 29, 7% and LCL revenue per shipment was up 27, 8% compared to a year ago.

Excluding fuel surcharge LCL revenue per hundredweight was up 15, 3% and <unk> revenue per shipment was up 13, 7%.

LCL tonnage per day in the second quarter. It was down 16, 4% driven by a 15, 2% decrease in <unk> shipments per day.

<unk>, 5% decrease in <unk> weight per shipment.

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

April down, 17% May down 17, 2% and June down 15, 1%.

On a preliminary basis July <unk> tonnage per workday was down approximately 17% compared to last year.

Total capital expenditures for the second quarter were $36 2 million compared to $143 $8 million a year ago.

Total capital expenditures for the first six months were $72 6 million compared to $346 2 million for the first six months of 2021.

Due primarily to continued supply chain disruptions and limited production capacity available for tractors and trailers. We are lowering our full year 2022 capital expenditures guidance from a range of $325 million to $400 million to a range of 250 to $300.

I will now turn the call over to Darryl.

Thank you Dan and good afternoon, everyone.

As you heard from Darren our plan is to complete the transition to one yellow and to begin operating as a super regional carrier around the end of the year.

Phase one will include the optimization 89 legacy wire sea freight and read away terminals in the western part of the U S.

Which has the lowest execution risk profile.

Our plan to integrate the line haul network and our pickup and delivery operations in the west.

Is on scheduled to be implemented this summer.

We will apply lessons learned during the remaining phase.

As we transform the network to operate at the Superregional 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 redundant.

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.

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, while creating additional capacity in the network.

Turning to hiring we remain committed to hiring and training. The next generation of safe professional drivers and we recently added four company sponsored driving the category in Columbus, Ohio, Tracy, California May.

<unk> broke New York and Detroit, Michigan.

This month, we also expect to open an academy in Albuquerque, New Mexico.

The total to 22.

These new academies should help us reach our goal of trading 1000, new drivers this year.

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

In close.

We are pleased with the results in the second quarter.

But we also know that there's much more opportunity that lies ahead.

I am confident that completing the journey to one yellow will.

We will provide an enhanced value proposition.

That will be a positive for our customers employees and shareholders.

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

Thank you Daryl I am proud of our employees and their efforts to focus on our customers and the communities that they lay up.

And ladies and gentlemen, our first question today comes from Jack.

Atkins from Stephens. Please go ahead with your question.

Hey, Good afternoon, guys. This is Greg Smith on for Jay and Thanks for taking my questions.

Good afternoon Graham.

Hey, thanks.

Would you provide a little bit of an update on our July trends and how the month went relative to your expectations and maybe are you seeing any change in the pricing momentum in the market.

Grant this is darrin I'll start with the pricing momentum unless an economy.

July trends from the script and others from.

From a pricing momentum standpoint, we've seen good consistency good discipline in the <unk> industry as a whole.

Pleased with our strategy and whats developing from that.

So we've got a lot of confidence in what we see from a pricing momentum standpoint, Dan I'll, let you comment on other to lastpass.

Afternoon graph as I covered in my prepared remarks, <unk> tonnage per day on a year over year basis was down 16, 4% year over year for the quarter and preliminarily July was down roughly 17%.

On a sequential basis from June to July our tonnage per day was down between 3% and 4% which is right in line with our historical trend.

So based on that from a tonnage perspective.

Absent any significant changes in broader economic demand, we would expect to see our normal historical sequential change in tonnage.

Q2 to Q3.

Yeah, great. Thanks for that again looking at the third quarter can you help us think about how we should look at the sequential progression of operating ratio and what is that normal seasonality look like and would you expect that the under former outperform seasonality this quarter.

We also had roughly $7 million a favorable adjustment to our insurance reserves related to work top and accident claims.

The impact of those two items on the second quarter or was approximately 80 basis points. So excluding those or would have been.

93 eight range.

Still would have been 410 basis points better than last year, and 550 basis points better than the first quarter.

As we move from Q2 to Q3, we historically see degradation in our or about 50 to 100 basis points.

I think with our jumping off point as I think about that as being at 93, 8% that I just mentioned I would expect that our sequential change in or Q2 to Q3 to be in line again with our historical trends.

Got it.

Last one probably for you Darren when you look across the hotel industry most public comps.

And at least the high 80% more than you.

And you have a unionized carrier.

A mid eighties or clearly there are a lot of things that need to happen.

To be able to execute on our mid eighties or but when you think about what you are working towards your long term over multiple cycles is there any structural reasons why you can't ultimately get there.

Grant this is Darren.

We don't give guidance I will make some comments that one yellow and all that we've talked about was one yellow and the reasons for pursuing the Super regional network, rather than having a holding company and four separate brands starts where the customer wants.

The customer wants from yellow and we know as long as we align with what the customer wants them all of those other pieces will go in the right direction, Dan called it out five consecutive quarters of continuous financial improvement. That's what we've been talking about that's what we've been demonstrating and proving along the way.

So to move in and to continue that improvement.

He is about one yellow and outlet Daryl <unk>, our president talk about some of the benefits that one yellow where brands. So go ahead Daryl.

Thank you and good afternoon grant as Darren mentioned.

When you think about one yellow the opportunity that we have in front of US is really around just better asset utilization and when I say that we have opportunities to better utilize our facilities and our equipment and our human capital. When you think about all the redundancies that exist still.

Still today under the yellow umbrella, we have four different fixed asset LCL trucking companies that are running or different pickup and delivery operations as well as the.

Drive growth with our customers, who have been asking for streamlined solution like this.

For several years and so.

Many more great things to come as we work to bring these things together and we're certainly going to keep everyone focused and updated along the way as we continue the journey here.

Okay. Thank you guys and congrats on a great quarter.

Thank you grant.

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

Everyone afternoon, and congrats on all the progress here.

Just.

The agent and when you think that we will see that capex investment get back to a normal level.

Hey, good afternoon, Britishness is Darren and I'll start with that one a big piece of one yellow is asset utilization and moving that in the right direction, where to tractors and trailers at the same customer as we eliminate those basis and certainly.

On a capex basis, moving forward and what our thoughts are so go ahead Dan.

Long term this is Bruce good afternoon.

About capex and really a lot of it is tied up in technology equipment and terminal infrastructure.

We have the luxury with our terminal infrastructure to be able to make all these changes that we're doing and have the capacity to grow without having to invest significant dollars in that.

Manage consideration it really comes down on the equipment side.

We made a huge investments in 2021, which gives us the time and space now as Daryl execute transformation to evaluate where ultimately we need to land long term thing.

About in the aggregate we entered this year with guidance for 2022 of $325 million to $400 million range I would not expect that it would lead to materially different from that.

A long term basis as we go forward.

Okay, that's really helpful.

Maybe another one for you Dan.

As you think about where the debt is right now a bit over $1 5 billion.

And as you think about that.

Level of debt and where you've come with EBITDA and then what might be happening here with the rate environment is there an opportunity to pursue a refinancing here.

Well, we certainly made some progress in terms of improving our financial performance and as we've talked about growing into our capital structure.

As a result of that progress so far with the current cap structure of $1 6 billion or.

Our leverage ratio is now less than four times for the first time since 2019, when our total capital structure with just over $900 million.

That said.

With the operational changes that are still coming we still think with the maturity is not until 2024 that we still have some more room for improvement there and then I will give us even better options than what we still would have today.

Okay, Great and then maybe just a last quick one here.

As you think about converting the network via one yellow and some of the move from maybe a national footprint on a lag basis to more of a regional Super Regional one is there anything to think about as far as yield dynamics length of haul revenue per shipment.

That might affect how that topline looks.

Bruce This is Darren when we think about the Super regional face, we're still going to have a significant transcontinental operation we'll have over 10 facility supporting the transcontinental operation just like we do today and what we will have is different than a shorter length of haul.

We will have a consistent service that aligns with the overall industry from a competitive standpoint, our transit time as well.

About the network changes that are common.

And also we've got the top line on yield in a good position of strength and it's been a foundation that we're going to protect bottom line, we know that giving the customer what they want will increase our revenue per shipment and when you think about our length of haul we've already got the mixture of the regional.

Companies.

So I wouldn't think in terms of major changes to our length of haul over time, but I would think of terms and better value for the customer and an improving revenue per shipment overtime.

Okay, great well I appreciate that color and congrats again on the results.

Thank you Bruce.

Okay.

And our next question comes from Scott Group from Wolfe Research. Please go ahead with your question.

Hi, Good afternoon. This is Aaron on for Scott. Thanks for taking the time today in answering my questions.

Absolutely.

Yes.

Great.

<unk>.

You had a pretty large spread between growth.

Net fuel yields this quarter.

I guess I was hoping you could talk a little bit more about the impact of fuel in the quarter and just what youre seeing so far in <unk>.

Yes, Aaron this is Dan so for the second quarter diesel prices were up roughly 70% compared to last year. So that resulted in our fuel surcharge revenue being up between 85% to 90% year over year.

And Thats, what really drives that gap in the <unk>.

Including versus excluding fuel and of course as we've all seen that.

Oil prices have moderated a little bit over the past few weeks, but we're still so early into the quarter only having one month behind us it's hard to know exactly how the.

For the full quarter will look like.

Got it thank you for that.

And then I guess just on terminal count I know in the last.

Earnings call you guys talked about being around like 300 terminals by year end is that still the plan and then I guess.

Tonnage kind of stays where its at or kind of falling do you see any potential to cut more terminals.

Aaron This is Darren we're currently at 316, when we execute the western changes.

Here in the next few weeks.

<unk> is down to 307, and then by the end of the year, we will be in the 300 range.

Yeah.

We have capacity for profitable freight right now.

Got it okay. Thank you and if I could just ask one more.

You noted that contractual renewals you are kind of trending now and link the six to seven.

Percent on year over year range, and I know I guess in April youre, seeing like 10% to 11%.

I guess are you seeing any sort of moderation in pricing.

So far into July now that you've kind of touched on this earlier, but I guess do you expect just the general.

More stable pricing trends throughout the rest of the quarter.

Aaron This is Darren.

Contract renewals when we comment on that.

It's a bellwether around yield we've seen what our yield numbers are compared to those contract renewals, we've reported out on in the past and the yield far exceed those numbers as those contract renewals true taken.

Taking one and especially a month like July .

Yes.

The number of renewals we have there is.

They are spread somewhat evenly throughout the year, but taking any one month.

It's typically not the way to look at that I will say overall I'm very pleased with what our where our pricing that I am pleased with what I see from industry pricing and I still have a lot of confidence in our yield path for 2022 and beyond.

Great. Thank you I appreciate all the color and thanks for the time.

Thank you.

And ladies and gentlemen, with that we'll be concluding today's question and answer session I would like to turn the conference call back over to the company for any closing remarks.

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

And ladies and gentlemen that will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.

Q2 2022 Yellow Corp Earnings Call

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