Q3 2022 Yellow Corp Earnings Call
Good afternoon, and welcome to the Yellow Corporation's third quarter 'twenty to 'twenty two earnings call.
All participants will be on listen only mode.
After todays presentation, there will be a question and answer session. Please note. This event is being recorded.
And now I would like to turn the conference over to Tony Fiorino, Senior Vice President of Treasury and Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to yellow corporations third quarter 2022 earnings conference call.
Joining us on the call today are Darren.
<unk> Chief Executive Officer.
Dan <unk> Chief Financial Officer.
In addition del Harris, President and Chief operating Officer will be available during today's question and answer session.
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.
Certainty 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.
For a 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 at my yellow Dot com.
Additionally, please see today's release for a reconciliation of net income to adjusted EBITDA and <unk>.
With today's earnings release, we issued a presentation, which may be referenced during the call the.
The presentation was filed in an 8-K, along with the earnings release and is available on our website.
I'll now turn the call over to Darren.
Thanks, Tony and good afternoon, everyone. Thank you for joining our call and Q3 revenue and operating income increased compared to a year ago, marking the sixth consecutive quarter of year over year improvement operating income improved despite an unfavorable impact from.
The higher third party liability claims expense compared to a year ago. Our strategy includes mitigating incremental purchase transportation expense and as a percentage of revenue decreased by one.
120 basis points in the third quarter compared to a year ago.
Throughout 2022, we have consistently kept our focus on improving the quality and profitability of the freight moving through our network and that continues to be our plan as we execute the final steps in the transformation to one yellow.
Q3 year over year, <unk> revenue per hundredweight, including fuel increased 24, 6%.
Overall, the demand for <unk> capacity appears to be moderating.
Following a period where demand exceeded supply.
However, the pricing environment remains favorable for the month.
Of October yellow reached an increase of approximately 5% on contract negotiations.
September we successfully executed phase one of the network optimization phase one impacted 89 legacy wire frame and read away terminals at the Western U S and integrate is the long haul network to support both regional and long haul service as well as the optimization of <unk>.
And delivery operations.
Went into the transition with a straightforward set of goals that would define success.
First we stood at the terminals up to begin operating as a super regional network, our employees moved customer shipments across the network and the leverage them as does that we make things simpler for our customers by having one driver picking up and delivering both wire sea freight and read away brands, which resulted in.
<unk> congestion at our customer stops.
We realigned and optimize more than 4600 terminals with cabinets positioning our facilities closer to our customers, enabling earlier pickups and deliveries and reducing city miles trap.
Finally, our employees remain highly engaged throughout the implementation of these changes, allowing us to capture valuable data and lessons learned as we prepared to integrate the rest of the network.
The performance of the network following the implementation of Phase one is meeting our expectations and we are excited about what this means when the entire network is operating as a super regional carrier.
We plan to have the rest of the network transformation completed around the end of the year one of the benefits of optimizing and LPL network with more than 300 terminals such as ours as we will be able to dispose of terminals in close proximity to each other that have overlapping service territories. However, we do not.
Plan to sacrifice customer service or geography.
We will look for opportunities to sell the excess terminals that we own and we expect to continue de risking the balance sheet by paying down debt with these proceeds.
Turning to our recently extended asset based loan facility. The progress. The company has made during the transformation. The one yellow helped position us to improve the terms of the facility, including enhancing our liquidity.
You'll hear more about this from van.
You for joining us today, and I will now turn the call over to Dan who will share additional details about the quarter.
Thank you Darren and good afternoon, everyone. The third quarter 2022 operating revenue was $1 three 6 billion compared to $1 3 billion in 2021.
Operating income was $49 1 million, including a $1 1 billion net gain on property disposals compared to operating income of $48 4 million in the prior year.
Adjusted EBITDA for the third quarter, 2022 was $90 6 million compared to $94 4 million in 2021 <unk>.
Adjusted EBITDA for the last 12 months was $401 7 million as of the end of the third quarter compared to $248 4 million a year ago.
Our revenue growth of four 5% in the third quarter compared to a year ago reflects continued strong yield performance and higher fuel surcharge revenue, partially offset by lower volume.
Including fuel surcharge third quarter <unk> revenue per hundredweight was up 24, 6% and <unk> revenue per shipment was up 22, 4% compared to a year ago.
Excluding fuel surcharge LCL revenue per hundredweight was up 12, 8% and <unk> revenue per shipment was up 10, 9%.
<unk> tonnage per day in the third quarter was down 16, 2% driven by a 14, 8% decrease in <unk> shipments per day, and a one 7% decrease in <unk> weight per shipment.
Sequential LCL tonnage per day trends compared to the prior year were as follows.
Slide down 17, 2% August down 15, 7% and September down 15, 8%.
On a preliminary basis October to LCL tonnage per workday were down approximately 24% compared to last year.
On a sequential basis from September to October or LCL tonnage per day was down between 6% and 7% compared to our historical trend of roughly 4%.
Our results during the quarter were negatively impacted by a $19 $4 million increased third party liability claims expense compared to a year ago, mostly due to the unfavorable development of prior year claims, including the resolution of several of our most significant outstanding claims.
Total liquidity at the end of the third quarter of $325 8 million compared to $409 2 million at the end of the third quarter 2021.
Capital expenditures for the third quarter were $68 1 million compared to $96 7 million a year ago.
Total capital expenditures for the first nine months were $140 7 million compared to $442 9 million for the first nine months of 2021.
We are also adjusting our full year 2022 capital expenditure guidance range from $250 million to $300 million down to $210 million to $230 million.
Also pertaining to liquidity a reminder, that in 2020, we deferred payment of $85 $6 million for certain payroll taxes under provisions of the cares Act.
We paid in the first half of that deferral $42 8 million in December of 2021, and the remaining $42 8 million is due in December of this year.
Finally, we recently completed the extension of our ABL asset based lending facility.
In addition to extending the maturity by two years from January 2024 January 2026.
Also increased the size of the facility from $450 million to $500 million and reduced the interest rate by 50 basis points. We appreciate the support of our lenders and as we move forward, we will continue to seek opportunities to strengthen our capital structure.
I will now turn the call back over to Darren for some closing comments.
Dan when I think about it yellow accomplishments in 2022, I am very proud of our employees and the execution of moving our network into the final stages of Super Regional service customers shareholders and employees should see strong benefits as we bring this together in the near term.
The transformation into 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.
Yes. Thank you and the first question comes from Jack Atkins with Stephens.
Hey, Good afternoon, guys. This is grant on for Jack.
Thank you for taking my question.
Yes, again I.
I guess, if we just start on one yellow.
First part of the integration just love an update on kind of how it's going and any cost savings youre, saying on a per shipment level that you could share maybe kind of quantify all of it.
Thank you grant this is Darren.
As I stated in the script, the western change, which involved 80.
Nine of our terminals went well it's living up to our expectations were.
We're picking up and delivering wire sea freight and read away freight with just one driver rather than to those pieces are coming together.
Facilities that.
We generated from the.
The changes that we no longer need without giving up geography.
Our service in those areas.
When you look at that in total.
It will be available to sale and also generate debt reduction for the company moving forward.
About the changes as a whole I'm excited that we're going to be wrapping up another 200 terminals between now and the end of the year. When you put all of this together, we can start expecting to see.
Different areas of cost savings certainly the facility related cost is this going to free up 28 terminals that were no longer going to make those costs will go away immediately and then those benefits will be applied to debt reduction immediately all the operational management synergies will be early on.
Already seeing those come into play and then the reduction in the city pickup and delivery models is also a near term benefit.
Creating the density and the land haul benefits will be iterative over time, but I do want to make a comment about the size of these changes phase two that we're doing between now and the end of the year involves 200 facilities 15000 employees. It requires the investments.
People and processes to get these things accomplished without any disruption to the customers and that's what we'll be focused on but it is an exciting time to wrap this up.
One yellow operating with Super Regional service as we go into 2023.
Yes. Thank you for the color there and you mentioned a little bit on our customers and their own service I'm. Just wondering if you could maybe provide us a little detail on what you're hearing from customers and how and when yellow is impacting service levels and how you see that trending going forward and maybe also a little bit on just what customers are telling you on demand in and what kind of trends youre seeing there out of them.
Thanks.
Yes, I'll take the demand side first and then go into the customer discussion certainly in October we saw a slackening of demand in our retail channel, even though like most LPL carriers, a larger portion of our revenue is in the industrial channel and it held up but some.
Our largest customers are actually in the retail channel and we saw slackening demand in the retail channel. So overall.
When I look at.
Six straight quarters of improvement in revenue and operating income I feel good about our pricing plan I like our strategy on what we've done overall in that retail slackening as to be expected with what we've seen in the broader economy from a customer perspective.
The great thing about yellow, we've got a large customer base with a long term loyalty in place and our employees have also benefited from these changes in the west and we've seen a high level of engagement as I mentioned in the script and those employees being able to operate as one yellow as we've been.
Looking about it for a while and they are excited to see it come into play so I feel confident from a customer standpoint, a customer service standpoint, and certainly going into whatever the economy may throw at us we've got great opportunity to capitalize on the benefits that reducing the redundancies throughout our <unk>.
Network will bring depending on what happens in the broader economy.
Okay, great. Thank you guys for the time.
Thank you.
Thank you and the next question comes from Scott Group with Wolfe Research.
Hey, this is actually Aaron on for Scott. Thanks for taking my question.
Good afternoon Darren.
Yes.
So I guess just.
Maybe just.
Update thinking about fourth quarter, a little bit and just the.
The sequential progression I know you mentioned, a few puts and takes and cost with the payroll expense.
Next quarter, how should we think about the sequential trend from here and would you expect it to kind of underperform outperform seasonality just anything any color on that.
Yes. Good afternoon. Aaron This is Dan first let me say this as Darren mentioned I'm also pleased that we were able to improve revenue and operating income on a year over year basis now for six consecutive quarters.
Our operating ratio for the third quarter was 96, four which was 10 basis points worse than the prior year. However, as I mentioned in my opening remarks, our third quarter results were.
Negatively impacted by the year over year increase of $19 $4 million third party liability claims expense, mostly due to the unfavorable development in resolution of claims from prior years.
The elevated level of expense, which was unusually high for any single quarter in which we do not expect to continue have a negative impact on the third quarter or 140 basis points.
So excluding that or would have been approximately <unk> 95, which would have been 130 basis points better than last year and more in line with our recent trends of profitability improvement.
Now as I think about sequential changes from Q3 to Q4, we historically see degradation in our operating ratio of.
100 basis points, so if I consider our jumping off point from Q3, being the 95 or more than I, just referenced I would expect our sequential change in or from Q3 to Q4 to be slightly better than that historical trend.
And then finally you touched on.
The repayment of the deferral of the cares Act.
Payroll taxes, that's only going to be a cash impact Q4, thats fully accrued and that will and will not impact expense in Q4.
Got it.
Very helpful.
Then also just TRA plans do you guys expect to are you planning that right now are like when are we going to hear about the next one.
Yes. This is Dan again, so we actually implemented a cri.
Five 9% effective October 3rd that's been in place for about a month now.
Got it and then if I could just ask one more on the contract renewal side.
And then just like you mentioned, 5% in October .
And that sort of trended or accelerated trust.
April I believe.
I guess, how do you think about that moving forward in length. Why was that is that just you had maybe lower price renewals up in earlier in the air and now Youre kind of lapping some stuff now any puts and takes there and then also just kind of a balance.
Volumes and price from here as we go through.
For Q.
Yes, well, let me start with saying we saw strong yield performance again on a year over year basis during the third quarter and.
And we saw continued sequential yield growth sequentially from Q2 to Q3, excluding fuel surcharge LTM revenue per shipment was up one 6%.
<unk> revenue per hundredweight was up three 2% so although the level of our contractual renewals has come down from a historically high level in recent quarters. We believe that we can continue to achieve sequential yield growth, even though the year over year percentage comparisons will continue to moderate.
Got it okay. Thank you guys appreciate the time.
Thank you.
Thank you and the next question comes from Jeff Kauffman with vertical research partners.
Thank you very much hey, guys.
Hey, good afternoon, Jeff and Jeff.
Afternoon. So.
If I think about the $19 4 million as more of a one off payment and true up and not really related to current operations.
95 is probably the right bogey to think about how you performed in the quarter is that a fair statement.
Yes, that's fair Jeff.
Alright, So let me switch gears to the <unk>.
Tonnage.
We I know you've been going through and.
Improving the yield on your customer mix something that was needed.
But at this point, we've been down almost double digit tonnage for six straight quarters now in the world is slowing down.
What is the right network size that you're seeking to have or how much more tonnage is out there to be renegotiated cold because it's still at the wrong price.
Jeff This is Darren.
Not interested in selling any more tonnage at this point it's been.
<unk> strategy for our company when we were making these changes and also on the road to profitability that we are better off with the demand environment that we're seeing right now, we're certainly going to protect our yield and we're going to prioritize profitability through the process, but when you think about our new network and the changes that we've laid out.
We're going to land at 219 terminal, so we're not giving up any geography or service area, we're basically giving up 6% of our dollars. So if you take those 28 facilities that are going away through phase one and phase two.
We're giving up $200, which is 6%.
Of our doors throughout the system. So we've got capacity for the right freight we certainly don't want to bring on any shipments or tonnage that doesn't contribute and that will not be our plan, but absolutely. When we complete the one yellow changes and then 2023 our value.
Proposition as we work through whatever the changing landscape and the economy is and will control our costs along the way through the reduction of purchased transportation Cartage Capex all of the normal paces and matching our labor to our overall volume.
This one yellow plan is absolutely a growth story, but its growing the right way profitably and also by providing our loyal customer base with a value proposition that will make that want to expand the utilization of yellow nationwide.
That was helpful. Thank you one last follow up.
As I look at how the freight market is changing through your eyes.
And you've seen some upturns you've seen some downturn.
What's a little bit different about this one and kind of which areas, whether you think of it as customer industry or product buckets or things like that.
Where are you seeing incremental weakness, where you're seeing incremental strength right now.
Yes. This is Darren and Youre certainly right. This is an unusual.
Progress that we've seen from the demand cycle that we were at and as we've seen it.
Just over the last 60 days challenging it was noticeable in October to me and our data yellow and what's what was happening in the retail channel our largest customers. If you look at our top 10 customer base.
Over half those will be in the retail channel and even though we haven't lost any significant accounts in that area.
Across the board shipment and tonnage decline in those areas in October so it's definitely evident in the retail channel and the interesting thing is in some of the industrial book of business that we've got.
Demand is still firm so.
As our economy moves forward and as America.
Get a clear line of sight on re shoring Nearshoring and also the amount of confidence they have.
Moving forward with inflation and that's going to be interesting to watch, but the big difference for US is this retail piece that we've seen in October which makes sense. I mean, we've got data that shows us where your inventory levels and others are and that will change over time. So the good thing about <unk>.
Our company is we can respond to that although we've spent.
A lot of time and money in 2022 through our driving academies and all of our hiring efforts.
And.
And also a lot in training and wed like to keep those employees onboard and in doing that we'll be focusing on reduction of cartage purchase transportation other areas and also we're going to need those employees to make sure that phase two goes well for our customers. So that's kind of how I see that.
Mix between now and the end of the year playing out yellow.
Well, thank you very much and congratulations.
Thank you Jeff.
Thank you and next question comes from <unk> Chen with Stifel.
Hey afternoon teams, Andrew Cox on for Bruce afternoon.
Good afternoon Andrew.
Hey, good to hear from you. So I'm just trying to understand how the fleet refreshment is coming along I heard you guys guided down capex for the rest of the year I'm just looking for a little bit more insight there is that related to equipment delays and any insight into how much more of the fleet is still needed to be refreshed from here that would be helpful. Thank you.
Yes. Good afternoon, Andrew This is Dan as I mentioned in my opening comments, our full year guidance for Capex has come down to a range of $210 million to $230 million.
About half of the reduction from prior guidance is due to the projected timing of spend around year end between 2022, and 2023 and the other half due to some items that we scaled back on just because of the amount of equipment needed to support lower volume trends.
We do continue to work closely with the Oems to keep a good line of sight to production capacity, but none of the reduction in our guidance was due to production delays.
Okay.
And I guess along that same node.
End of expectation for software bulk volumes moving forward, how has that expectation changed the timeline or the scope of one yellow project if things didn't fall further from here.
<unk> ability do you guys have to flex up or down in that process.
Andrew This is there and we're right on track with one yellow.
That is something that will not change regardless of external inputs of economy inflation. Other pieces. This is a long term strategy and we're right in the final chapters of it very excited to be bringing in the marketplace. This opportunity to have Super regional service from.
A brand like yellow so.
That will the timeline between now and the end of the year will be certainly very prepared and we'll be executing that.
Tapping.
Alright, well, that's all I had thanks, so much for the time and congratulations on the progress look forward to seeing what happens from here.
Thank you Andrew.
Thank you and this concludes our earnings call 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 might have this concludes our call and operator I'm turning the call back to you. Thank you.
Vince has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
[music].
[music].
Good afternoon, and welcome to the Yellow Corporation's third quarter 2022 earnings call.
All participants will be on listen only mode.
After todays presentation, there will be a question and answer session. Please note. This event is being recorded.
And now I would like to turn the conference over to Tony Carreno Senior Vice President of Treasury and Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to yellow corporations third quarter 2022 earnings conference call.
Joining us on the call today are Darren Hawkins, Chief Executive Officer, and Dan <unk>, Chief Financial Officer.
In addition del Harris, President and Chief operating Officer will be available during today's question and answer session.
During this call we may make some forward looking statements within the meaning of federal Securities law.
Forward looking statements and all other statements that might be made on this call, which are not historical facts are subject to uncertainty and a number of risks and therefore actual results may differ materially.
The format of this call does not allow us to fully discuss all of these risk factors.
For a full discussion of the risk factors that could cause our results to differ please refer to this afternoon's earnings release, and our most recent SEC filings, including our forms 10-K 10-Q.
These items are also available on our website at my yellow Dot com.
Additionally, please see today's release for a <unk>.
Reconciliation of net income to adjusted EBITDA.
With today's earnings release, we issued a presentation, which may be referenced during the call. The presentation was filed in an 8-K, along with the earnings release and is available on our website.
I will now turn the call over to Darren.
Thanks, Tony and good afternoon, everyone. Thank you for joining our call and Q3 revenue and operating income increased compared to a year ago, marking the sixth consecutive quarter of year over year improvement operating income improved despite an unfavorable impact.
The higher third party liability claims expense compared to a year ago. Our strategy includes mitigating incremental purchase transportation expands and as a percentage of revenue decreased by 120 basis points in the third quarter compared to a year ago.
Throughout 2022, we have consistently kept our focus on improving the quality and profitability of the freight moving through our network and that continues to be our plan as we execute the final steps in the transformation to one yellow.
Q3 year over year, <unk> revenue per hundredweight, including fuel increased 24, 6%.
Overall, the demand for LCL capacity appears to be moderating.
Following a period where demand exceeded supply.
However, the pricing environment remains favorable for the month of October yellow averaged an increase of approximately 5% on contract negotiations in September we successfully executed phase one of the network optimization.
Phase one impacted 89 legacy wire sea freight and read away terminals in the Western U S and integrated the long haul network to support both regional and long haul service as well as the optimization of pickup and delivery operations.
I know that the transition was a straightforward set of goals that would define success.
First we stood the terminals up to begin operating as a super regional network, our employees moved customer shipments across the network and the leverage them as does that we make things simpler for our customers by having one driver picking up and delivering both wire sea freight and read away brands, which resulted in.
Congestion at our customer stops.
We realigned and optimize more than 4600 terminals ziff cabinets positioning our facilities closer to our customers, enabling earlier pickups and deliveries and reducing city miles traveled.
Finally, our employees remain highly engaged throughout the implementation of these changes, allowing us to capture valuable data and lessons learned as we prepare to integrate the rest of the network.
We will share additional details about the quarter.
Thank you Darren and good afternoon, everyone. The third quarter of 2022 operating revenue was $136 billion compared to $1.3 billion in 2021.
Operating income was $49 $1 million, including a $1.1 billion net gain on property disposals compared to the operating income of $48.4 million in the prior year.
Adjusted EBITDA for the third quarter of 2022 $96 million compared to $94 $4 million in 2021.
Adjusted EBITDA for the last 12 months with $401.7 million as of the end of the third quarter compared to $248.4 million a year ago.
Our revenue growth of $4, 5% in the third quarter compared to a year ago reflects continued strong yield performance and higher fuel surcharge revenue, partially offset by lower volume.
Including fuel surcharge third quarter LCL revenue per hundredweight was up $24, 6% and LTR revenue per sentiment was up 22.4% compared to a year ago.
Excluding fuel surcharge LCL revenue per hundredweight was up 12.8% and LCL revenue per shipment was up 10.9%.
LCL tonnage per day in the third quarter was down 16.2% driven by a 14.8% decrease in lcl's shipments per day, and the 1.7% decrease in <unk>.
Sequential LCL time, just per day trends compared to the prior year Awards followed.
July down 17.2% August down 15.7% in September down 15.8%.
On a preliminary basis October lcl's furnished per workday was down approximately 24% compared to last year.
On a sequential basis from September to October .
Tons per day was down between six and 7% compared to our historical trend of roughly 4%.
Ah results during the quarter were negatively impacted by a 19.4 million dollar increase in the third party liability claims expense compared to a year ago, mostly due to the unfavorable development of prior to your claims.
Including the resolution of several of our most significant outstanding claims.
Total liquidity at the end of the third quarter of $325 $8 million compared to $409.2 million at the end of the third quarter of 2021.
Capital expenditures for the third quarter for $68.1 million compared to $96.7 million a year ago.
Total capital expenditures for the first nine months or $147 million compared to $442.9 million for the first nine months of 2021.
We are also adjusting our full year 2022 capital expenditures guidance range from $250 million to $300 million down to $210 billion to $230 billion <unk>.
Also pertaining to liquidity a reminder, that in 2020, we deferred payment of $85 $6 million for certain payroll taxes under provisions of the care of that.
We paid in the first half of that deferral 42.8 million in December of 2021, and the remaining $42.8 million is due in December of this year.
Finally, we recently completed the extension of our ABL, our asset base lending facility.
In addition to extending the maturity by two years from January 2024 to January 2026th We'd also increased the size of the facility from $450 million to $500 million and reduce the interest rates by 50 basis points.
We appreciate the support of our lenders and as we move forward, we will continue to seek opportunities to strengthen our capital structure.
I will now turn the call back over to Darren for some closing comments.
Thank you Dan when I think about a yellow accomplishments in 2022.
I'm very proud of our employees and the execution of moving our network in the final stages of Superregional service.
Customers shareholders and employees should see strong benefits as we bring this together in the near term.
The transformation into one yellow, what's 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.
Yes. Thank you.
The first question comes from Jack Atkins was Stevens.
Hey, Good afternoon, guys. This is grant on for Jack.
T mobile giant.
I guess, we just start on one yellow the first part of the integration just living up they don't kind of how it's going and many cost savings you're seeing on appreciate mid level that you could share me kind of quantify element.
Thank you Grant this is Darren as I stated in the script, the western change, which involved 89 of our terminals went well it's living up to our expectations.
Picking up and delivering wire see Friday, and Red away Frey with just one driver rather than to those pieces are coming together the facilities that we generated from the.
The changes that we no longer made without giving up geography.
Our service in those areas.
When you look at that and total.
So it will be available to to sale and also generate a debt reduction for the company moving forward when I think about the changes as a whole I'm excited that we're going to be wrapping up another 200 terminals between now and the end of the year. When you put all of this together we can start.
Expecting to see.
Different areas of cost savings certainly the facility related cost is this going to free up 28 terminals that we're no longer going to make those costs will go away immediately and then those benefits will be applied to debt reduction immediately.
The operational management synergies will be early on already seeing those come into play and then the reduction in the city pickup and delivery miles is also a near term benefit creating the density and the line-haul benefits will be iterative overtime, but I do want to make a comment.
The size of these changes phase two that were doing between now and the end of the year involves 200 facilities 15000 employees.
Requires the investments.
Of people and processes to get these things accomplished without any disruption to the customers and that's what we'll be focused on.
But it is an exciting time to wrap this up and have one yellow operating with Superregional service as we go into 2023.
Yeah. Thank you for to come over there and you mentioned a little bit on on customers on service I'm. Just wondering if you could help me providing details on what you're hearing from customers and you may have one yellow is impacting service levels and how do you see that training going forward and maybe also a little bit on just what customers. You are telling you on demand and and what kind of tunes you are seeing their out of them.
Thanks.
Yeah, I'll take the demand side first and then go into the customer discussion certainly in October .
Saw a slackening demand in our retail channel, even though like most <unk> carriers.
A larger portion of our revenue is in the industrial channel and it held up but some of our largest customers are actually in the retail channel and we saw slackening demand in the retail channel. So overall when I look at.
Six straight quarters of improvement in revenue and operating income I feel good about our pricing plan I like our strategy on what we've done overall.
Overall and that retail slackening is to be expected with what we've seen in the broader economy from a customer perspective that's.
That's the great thing about yellow, we've got a large customer base with like long term loyalty in place and our employees have also benefited from these changes in the west and we've seen a high level of engagement as I mentioned in the script.
And those employees being able to operate as one yellow as we've been talking about it for awhile and they're excited to see it come into play so I feel confident from a customer standpoint, Ah customer service standpoint, and certainly going into whatever the economy may throw at us we've got great opportunity to capitalize.
As on the benefits that reducing the redundancies throughout our network will bring depending on what happens on the broader economy.
Okay, great. Thank you guys for the time.
Thank you.
Thank you and the next question comes from Scott Group Group with Wolf Research.
Hey, this is actually an unfree Scott thanks for taking my question.
Good afternoon mayor.
So I guess just maybe.
Update thinking about fourth quarter, a little dent in just.
The sequential progression I know you mentioned, if you put some peaks and costs the payroll expense.
Next quarter, how should we think about the sequential trying to learn from here and would you expect it to kind of underperform outperform seasonality just anything any color on that.
Yeah. Good afternoon here. This is Dan first let me say this is Darren mentioned I'm also pleased that we were able to improve revenue in operating income on.
On a year over year basis, now for six consecutive quarters.
Are operating ratio for the third quarter was $96 for which was 10 basis points worse in the prior year. However, as I mentioned in my opening remarks, our third quarter results were negatively.
Negatively impacted by the year over year increase of $19.4 million third party liability claims expense, mostly due to the unfavorable development and resolution of clients from prior years.
Elevated level of expense, which was unusually high for any single quarter in which we do not expect to continue have a negative impact on the third quarter or of 140 basis points.
So excluding that or would have been approximately 95, which would have been.
130 basis points better than last year and more in line with our recent trends of profitability improvement.
But I think about sequential changes from Q3, the queue for historically see degradation in our operating ratio of about 100 basis points. So if I consider her a jumping off point from Q3 being the 95 a war then I just reference I would expect or sequential change I know are from Q3 Q for to be slightly.
Better than that historical trend.
Then finally touched on the.
The repayment of the deferral of their Care's Act.
Payroll taxes, that's only going to be a cash impact Q4, that's fully accrued and that will and will not impact expense in queue sport.
No. That's that's very helpful. And then also just.
<unk> plans you guys.
Q are you planning that right now are like when are we going to hear about the next one.
Yes. This is Dan again, so we actually implemented a G R I.
Five 9% effective October 3rd that's been in place for about a month now.
Got it and then if I could just ask one more on the contract renewal side noticed like you mentioned, 5% in October .
And that's sort of trend is celebrated throughout the day, It's April I believe.
Yes, how do you think about that moving forward and like why was that is that you had maybe lower priced renewals up in earlier in the air and now you're kind of laughing. Some stuff now many puts and takes there and then also just kind of the balance of volumes in price from here as you go through four Q.
Yeah, well, let me start with saying you know we saw strong eula performance again on a year over year basis during the third quarter and.
And we saw continued sequential yield growth sequentially from Q2 Q3.
Excluding fuel surcharge LCL revenue persistent was up 1.6%.
LCR revenue per hundredweight was up 3.2%.
So although the level of our contractual renewals has come down from a historically high level in recent quarters. We believe that we can continue to achieve sequential yield growth, even though that year over year percentage comparisons will continue to moderate.
Got it okay. Thank you guys I appreciate the time.
Thank you.
Thank you and the next question comes from Jeff Kofman with vertical research partners.
Thank you very much hey, guys.
Good afternoon, JF, New Jack City.
Afternoon. So if I think about the 19.4 million is more of a one off payment and true up and not really related to current operations 95 is probably the right Boogie to think about how you performed in the quarter is that a fair statement.
Yeah, that's fair Jeff.
Alright, So let me switch gears to the.
Tonnage.
Because we I know you've been going through and.
Improving the yield on your your customer mix.
Thing that was was needed.
But at this point, we've been down almost double digit tonnage for six straight quarters, now and the world slowing down.
What is the right network size that you're seeking to have or how much more tonnage is out there to be renegotiated cold because it's still at the wrong price.
Jeff This is Darren I'm not interested in culling any more 10 inch at this point it's been.
<unk> strategy for our company when we were making these changes and also on the road to profitability that way better.
Demand environment that we're seeing right now, we're certainly going to protect our yield and we're going to prioritize profitability through the process, but when you think about our new network and the changes that we've laid out we're gonna land that 290 terminal.
Not giving up any geography, our service area, where basically giving up 6% of our door. So if you take those 28 facilities that are going away through phase one and phase two.
We're giving up $1200, which is 6%.
Of our doors throughout the system. So we've got capacity for the right freight we certainly don't want to bring on any shipments are tonnage that doesn't contribute and that will not be our plan, but absolutely when we complete.
One yellow changes and then 2023, our value proposition halfway through whatever the changing landscape and the economy is it will control of our calls along the way through the production of purchase transportation carded Capet, all the normal pieces of matching our labor to our overall.
Volume.
But this one yellow plan is absolutely of growth story, but it's growing the right way profitably and also by providing our loyal customer base, where the value proposition that will make them want to expand their utilization of yellow nationwide.
That was helpful. Thank you one last follow up.
As I look at how the free market changing through your eyes.
And you know you've seen some upturns you've seen some downturns.
What's a little bit different about this one and kind of which areas, whether you think of it as customer industry or product buckets or things like that where you see an incremental weakness where you see an incremental strength right now.
Yes. This is Darren and you're certainly right just as an unusual Prague.
Progress that way of saying you know from the demand cycle that we were at and as we've seen it.
Just over the last 60 days challenging.
It was noticeable in October to me in.
Our data at yellow and what's what was happening in the retail channel our largest customers do look at our top 10 customer base.
Over half those will be in the retail channel and even though we haven't lost any significant accounts in that area. We saw across the board ship tonnage decline in those areas in October so it's definitely evident in the retail channel and the interesting thing is in some of the industrial book a business that we've got.
My hand is still firm so.
As our economy moves forward and as America.
Gets a clear line of sight Reshoring Nearshoring and also the amount of confidence they have moving forward with inflation involved it's going to be interesting to watch, but the big difference for us.
Retail piece that we've seen in October which makes sense I mean, we've got data that shows us ordering inventory levels and others are and therefore change over time. So the good thing about our.
Our company as we can respond to that although we've spent.
A lot of time and money in 2022 through our driving academies and all of our hiring efforts.
And and then also a lot in training and we'd like to keep those employees onboard and in doing that we will be focusing on reduction of cartage purchased transportation other areas and also we're going to need those employees to make sure that phase two goes well for our customers. So.
That's kind of how I see the next between now and the end of the year playing out for yellow.
Okay, well, thank you very much and congratulations.
Thank you Jeff.
Thank you and that's twice a customer of channels Stifel.
Hey afternoon teams to Andrew Cox on for Bruce afternoon.
Yeah, Good afternoon Andrew.
Good to hear from yet so I'm just trying to understand how the fleet refreshment is coming along I heard you guys got it down capex to the rest of the year I'm just looking for a little bit more insight there is that related to equipment delays and any insight into how much more of the fleet is still needed to be refresh from here that'd be helpful. Thank you.
Yeah. Good afternoon, Andrew This is Dan as I mentioned in my opening comments are full year guidance for Capex has come down to a range of $210 million to $230 million.
About half of the reduction from prior guidance is due to the projected timing of spend around here and between 2022 in 2023 and the other half due to some items that we scaled back on just because of the amount of equipment needed to support lower volume trends.
We do continue to work closely with the Oems to keep a good line of sight to production capacity, but none of the reduction in our guidance was due to production delays.
Okay. That's that's helpful and I guess along that same note.
Expectation for for softer volumes moving forward, how has that expectation changed the timeline or the scope of the one yellow project if things devolve further from here you know what the ability do you guys have to flex up or down in that process.
Andrew This is there and we're right on track with one yellow.
That is something that will not change regardless of external inputs of economy.
Inflation other pieces. This is a long term strategy and we're right in the final chapters of it very excited to be bringing the marketplace. This opportunity to have superregional service from a brand like yellow so bad.
<unk> the timeline between now and the end of the year will will be certainly very prepared and will be executing that.
Topping.
Alright, well, that's all I had thank so much at the time and congratulations on the progress look forward to seeing what happens from here.
Thank you Andrew.
Thank you.
<unk> call 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 an operator I'm turning the call back to Ya. Thank you. The conference has now concluded. Thank you for attending today's presentation may now disconnect your lines.