Yellow Corporation

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

Joining us on the call today are Darren Hawkins, Chief Executive Officer; Dan Olivier, Interim Chief Financial Officer; and TJ O'Connor, Chief Operating Officer. During this call, we may make some forward-looking statements within the meaning of federal securities law.

These forward-looking statements and all other statements that might be made on this call, which are not historical facts, are subject to uncertainty and a number of risks and therefore, actual results may differ materially. The format of this call does not allow us to fully discuss all of these risk factors.

For a full discussion of these risk factors that could cause the results to differ, please refer to this afternoon’s earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q. These items are also available on our website at myyellow.com.

Additionally, please see today’s release for a reconciliation of net income to adjusted EBITDA. In conjunction with today’s earnings release, we issued a presentation which may be referenced during the call.

The presentation was filed in an 8-K, along with the earnings release and is available on our website. I’ll now turn the call over to Darren.

Thanks Tony and good afternoon, everyone. Thank you for joining our call.

We're excited to announce that effective today, we are Yellow Corporation. This is a name with a strong brand awareness that represents our proud history as the original American LTL company.

Turning to Q4, adjusted EBITDA improved by $10.6 million compared to a year ago and operating income improved by $14 million, excluding gains on property sales. Pricing continued to improve during the quarter and that trend has carried into 2021.

For the month of January, the Yellow companies averaged around plus or minus 6% on contract negotiations. With the industrial and retail segments of the economy improving, a shortage of qualified drivers is keeping LTL capacity at a fairly consistent level.

The driver shortage is an industry-wide problem and we remain focused on recruiting and training additional drivers. We will continue to make this a priority and you'll hear more about this from TJ.

Despite the challenges the COVID-19 pandemic presented, in 2020 we remained focused on our multiyear enterprise transformation to optimize and structurally improve our network that includes more than 300 strategically located terminals throughout North America. In Q4, we successfully implemented an intermodal change of operations in Memphis.

This change allows for the movement of shipments on intermodal containers to and from our Western US operations. We kicked off 2021 by continuing our network optimization efforts with the integration of five legacy national terminals into operations at a regional terminal in January.

This allows us to now serve these markets in Louisville, Lexington, Evansville, Birmingham and Des Moines with one brand, one operation while providing customers with a broader network of Yellow services. This change brings the number of facilities in use to 327.

We have a number of additional integration slated throughout 2021 as we continue our path towards transforming the Yellow network into a super regional operation. When completed, the enterprise transformation is expected to increase property and rolling stock asset utilization, expand service offerings and leverage operational flexibilities gained with our 2019 labor agreement.

The results will be to operate on one yellow technology platform as one yellow network and under one yellow brand that provides excellent service to our customers. In January, we drew $176 million from tranche B of our U.S.

Treasury commitment. These funds will be used to invest in our fleet and it is significant due to the positive impact it will have on age and efficiency of our tractors and trailers, our drivers are also excited about the new rolling stock that we are onboarding.

We recently announced two additions to our Board of Directors, David McClimon and Chris Sultemeier. Mr.

McClimon, most recently led a private consulting practice and has served in executive roles for industry-leading transportation companies. Mr.

Sultemeier most recently served as EVP of Logistics and President CEO of Walmart Transportation LLC. I am very pleased to welcome them to Yellow's Board of Directors with their impressive, proven track records from both a shipper and carrier perspective.

Yellow will benefit tremendously from their insight and leadership experience. As we turn our focus to 2021, our key priorities include executing one of the largest fleet refreshes in our company's history and I'm excited by the CapEx plan supporting the refresh.

We will be focused on meeting our customer's needs, mitigating purchase transportation expands and hiring and training drivers. We also plan to continue executing the information technology phase and network optimization as part of our enterprise transformation.

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

Thank you, Dan and good afternoon, everyone. For the full year 2020, our operating revenue was $4.51 billion compared to $4.87 billion in 2019.

Operating income in 2020 was $56.5 million, which included $45.3 million net gain on property sale. This compares to operating income of $16.2 million in 2019, which included a $13.7 million net gain on property sales.

Adjusted EBITDA for full year 2020 was $191.9 million compared to $210.6 million in 2019. For the fourth quarter of 2020, operating revenue was $1.17 billion compared to $1.16 billion in 2019.

Operating income for the fourth quarter was $13.7 million compared to $9.8 million in the prior year which included a $10.1 million net gain on property sale. Adjusted EBITDA for the fourth quarter 2020 was $57.9 million compared to $47.3 million in 2019.

Revenue for the fourth quarter reflected a 2.4% increase in LTL tonnage per day and LTL weight per shipment was up 2.5%. Sequential LTL tonnage per day trends during the fourth quarter were as follows and these are compared to the prior year; October up 1.9%, November up 2.2% and December up 3.2%.

On a preliminary basis, January LTL tonnage per day was up between 2% and 3%. Excluding fuel surcharge, LTL revenue per hundredweight was up 2.2% and LTL revenue per shipment was up 4.8%.

Including fuel surcharge, LTL revenue per hundredweight was down 0.7% and LTL revenue per shipment was up 1.8%. Total liquidity at the end of the fourth quarter was $440 million compared to $80 million at the end of 2019.

Total capital expenditures for the fourth quarter were $99 million compared to $32 million in the prior year. Now for a brief update on the U.S.

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

So as of the end of 2020, all $300 million tranche A has been drawn, $274 million of which has been used and we expect the remaining $26 million will be used during the first quarter of 2021. Related to the $400 million tranche B loan as we method on the third quarter earnings call, the first $75 million tranche B was requested and funded in October, $72 million of which was used to acquire more than 300 tractors and 1200 trailers most of which was in the back half of the quarter.

As Darren mentioned, the next $176 million tranche B was received during January. So in total as of today, we have drawn $251 million and we expect to draw the remaining $149 million throughout the remainder of 2021.

With the incremental funding from tranche B along with our strong liquidity position, we plan to significantly increase our capital expenditures in 2021 to the range of $450 million to $550 million. In addition to tractors and trailers, investments will include technology, box trucks, containers, lift gates and other assets.

During the first quarter alone, we expect to acquire approximately 1100 tractors, 1900 trailers and 250 containers. And finally, although we feel good about our performance in the fourth quarter and we feel optimistic about 2021, there are still some short-term cost challenges to work through early in the year specifically, as it pertains to elevated purchase transportation expenses caused by the shortage of qualified drivers.

As we continue to work through that challenge and place new equipment into service, we expect our year-over-year financial performance in 2021 to improve as the year progress. With that, I will turn the call over to TJ.

Thank you, Dan and good afternoon, everyone. It is a very exciting time at Yellow.

We have the opportunities to implement one the largest capital expenditure plans in our company's history. This combined with the progress we are making in our multiyear enterprise transformation will further enhance our position in the marketplace.

As you heard from Darren, the industry is experiencing a shortage of qualified drivers. Steps we have taken and are taking to hire drivers include implementing a signing bonus, accelerating pay progressions in certain markets and expanding our driving cabins.

We're increasing the number of driving schools and by the end of March, we expect to have 12 academies in operation around the country. We also internally see great potential in our current employees, such as box truck drivers and dockworkers were part of the Yellow team, but not yet CDL qualified.

We will continue to look at opportunities to ensure we are prepared to meet the needs of our customers and have sufficient capacity. In the fourth quarter, salary, wages, benefice decreased by $46 million compared to a year ago, which was largely impacted by fewer total hours worked.

An increase in purchase transportation expense of $50 million more than offset the favorable variance in salaries, wages and benefits. Roughly 45% of the increase in purchase transportation was due to rail from higher volume in addition to growth at Henry Logistics.

The remaining increase in purchase transportation was primarily due to the use of expensive local cartridge and over the road purchase transportation both of which were impacted by tighter capacity. Moving forward we will continue using rail where we can due to the cost efficiency and the positive impact of driver availability.

We expect that by continuing to focus on hiring and training drivers, it will help reduce cartridge expense. Finally as we purchase the tractors, trailers and containers and our CapEx plan we expect to use fewer short-term rentals and to see a decrease in leased equipment.

On a year-over-year basis, we anticipate higher purchase transportation expense will continue for the first couple of quarter in 2021. The intermodal change of operations in Memphis was executed as planned in December is an example of the coordinate steps we are taking as part of the enterprise transformation.

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

The Richmond expansion connects Legacy National and regional terminals in five states. Customers will now have access to the vaster transit times and more streamlined supply change, which is a blueprint for our super regional service.

We continue to work on the technology phase and the network optimization of our enterprise transformation. The technology phase includes consolidating pickup and delivery sales, customer service line haul, human resources, maintenance and in-cab safety to one platform.

When completed, we'll operate with one set of technologies, revised to support the super regional model. In closing, I'd like to thank our dedicated and safety minded professionals at Yellow.

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

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

Thank you, TJ. I want to thank the Yellow team comprised of nearly 30,000 freight professionals from coast to coast.

They embrace the challenge every day and continue providing essential freight transportation services for our customers and the communities we serve. I'm excited about the road ahead with our multiyear enterprise transformation progressing, investments in equipment and technology along with tied LTL capacity, I remain confident that we are well-positioned for 2021 and beyond.

Thanks for your time this afternoon. We would now be happy to answer any questions that you may have.

Hey everybody you get weight on for Jack this afternoon. Thanks for taking our question.

I want to start is there any additional info that you can share with us on the impact of the new equipment that you’ve been purchasing with the Cares Act funding and sort of how that's impacting the business and what source of impacts or savings we can expect in '21?

We're not going to any specific guidance around that, but what I'll say is we certainly expect to achieve lower maintenance cost as we bring on the new tractors and trailers and of course improve fuel economy on the tractors and we began taking delivery of that equipment as I mentioned in the back half of the quarter. So even though every unit that comes on has a positive impact.

The number of units we brought on during the fourth quarter is a percentage of the overall fleet was relatively small. So we didn't see much of any financial impact during the fourth quarter.

As we continue to bringing on more equipment in 2021 and we're able to sunset the older units, that's when we'll start to really see a more pronounced impact on the maintenance cost and fuel economy.

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

Has it become easier to go to market? Are you seeing increased appetite for capacity?

Is that translating into new contract wins and stuff like that?

Yellow, it's all about the customer. Everything we're doing when we talked through the enterprise transformation, the network changes, the onboarding of equipment is focused on the customer.

We've always had a nice advantage across all of the companies that make up Yellow and having a large widespread customer base close to 200,000 customers. As we went through negotiations in the fourth quarter, almost 2,000 negotiations we had very nice positive outcomes and as I mentioned from a pricing aspect that we're running in the 6% range moving forward.

So that's all encouraging. Demand is solid.

Right now the consumer is standing up well. Construction is strong.

Manufacturing is looking good. I am confident from a customer perspective and the demand levels we're seeing that pricing will remain favorable and were proud of the customer base that continues to choose Yellow on a daily basis.

Darren you had noted in your prepared remarks that contract renewal I think were up 6% in the month of January. Can you give us an update what those were in the fourth quarter?

Yes in the fourth quarter it was 5.6%.

And has YRC announced a general rate increase? I don't think I had seen one last time I kind of had gone through, but curious if you guys have announced one early this year?

We did it's nice timing. It went into effect this past Monday at 5.9%.

I guess guys obviously are beginning the broader corporation today, are you contemplating kind of rolling all of the service offerings into the Yellow brand or do you plan to kind continue to operate with multiple brands in the marketplace from a customer facing perspective. The enterprise transformation that I referenced and thank you for asking the question so that I can make sure that we've got absolute clarity on that.

So naturally we expected to increase our property, our rolling stock asset utilization is going to give us expanded service offerings. It will leverage the operational flexibilities that we gained in the 2019 Labor Agreement.

It'll consolidate all the different technology platforms into a single platform and then also rationalize the number of physical locations in the network. So the result at the end of that Rob will be Yellow will be one company.

Yellow will run one network, will operate under one Yellow brand as a super regional carrier. Now in the timeframe between now and the first half of 2022 when all that comes together, we will continue to present all our brands to the marketplace.

These changes will be seamless to the customer. Just as I mentioned the five markets that we made changes in, in Q1, the customer experience just gets easier by being able to engage one carrier and get the offerings of the entire corporation.

So that will occur. Yellow will become a super regional carrier going to market as one brand which will be Yellow between now and the first half of 2022.

And I guess Darren as we think about kind of the process of this transformation into the super regional carrier, how should we think about kind of the cadence and the cost saving opportunity for the broader company?

All those I've just mentioned certainly reducing duplicate efforts just as we've done in the markets I mentioned in Birmingham Alabama for example, where you at Holland and YRC freight operating separately, today they're operating together. So rather than having two drivers from two of our companies at one customer, we're able to service that with one driver, one tractor, one set of equipment.

That's what drives that asset utilization in the right direction. We will continue those changes steadily throughout the year, moving to one platform that starts with new pin moving over to the same technology platform as YRC freight than Holland and Reddaway will follow that.

Over that time period, we'll also be adjusting the network. The good thing is our networks operate as three best in class regional carriers right now and by putting connectors in place and also with what TJ mentioned of the next day operation in Texas for YRC freight and the mid-Atlantic, it allows us to put the companies together from a network aspect with very little disruption and only makes the customer's service experience better.

I will turn it over and hop back into queue.

Thanks for taking the follow-up. In terms of the cadence with the tranche B with the U.S.

Treasury loan. How should we think about the capital investments?

Is that all going to be kind of front half loaded? When will we get additional color in terms of the remaining I want to call roughly $150 million?

Yeah this is Dan. As I mentioned in my opening comments, we expected during the first quarter alone, we expect to acquire approximately 1100 tractors and 1900 trailers and we would expect the majority of the $176 million to be spent in the next two to three months and then as far as the remaining $149 million, we expect to request and to use that throughout the remainder of 2021.

That said because of the return on the investment we get from the new rolling stock the tractors and trailers, as quickly as we're able to get our hand on that and that's somewhat depend on the OEM. The earlier we can get that equipment, the better it is for us.

And are you guys buying exclusively new with the treasury funds? Are you are also contemplating buying used like any additional color you could provide in terms of the current 1,100 tractors you're going to be getting over the near-term?

The vast majority of the equipment in our CapEx plans in the entire year not just the tranche B is going to be our new tractors and trailers. We also because of our liquidity position and the support of the tranche B funds, we're not entering into any new leases in 2021 and there are quite a few lease buy outs that we'll be doing during 2021 as well.

And Dan are those frontloaded, backend loaded and how should we think about, the magnitude of the buyout from a capital to plaintiff perspective?

The lease files will happens just as they come due as they resend the lease, those are going to be spread fairly easily throughout the year.

Hey guys. Thanks for thanking the follow-up.

I had a question about the LTL demand landscaping sort of how that impacts your network optimization plan. It seems like we've seen and we're continuing to see some resiliency among shippers in the traditional end markets.

There also feels like we're starting to feel the impacts of the new type of customer in the LTL market, in the e-commerce shippers. So when you think about the way that your network is positioned is what you have the right footprint, geographical coverage etcetera or are there some new found needs or opportunities that have popped up over the last nine months that you've identified that you might look to execute on this year?

Happy to take that question. Thanks for asking.

While we see we're well positioned first off on the e-commerce and we do a fair amount of business with large, medium asphalt e-commerce players. What we are seeing is that and while I feel we're well suited for that, we see a lot of additional and new warehousing space for e-commerce.

So that favors our network capabilities, our overall super regional capabilities of Yellow. So we're well-suited for that and we stay in touch obviously very closely with these ecommerce players and they communicate very well with us in terms of their interest growth rates, their surge periods from a calendar standpoint.

We've been able to help out quite a few of them as a matter of fact. We're not going to gain capacity that they need for their pretty robust growth that they're seeing really particularly since COVID.

So there is reflection of what's going on related to COVID and the pandemic with those ecommerce shippers and they have increasing needs for capacity.

Okay. That's very helpful.

If I can trail even one more here Henry Logistics, could you speak a little bit to the strategic importance and complement to the rest of your business and how that has or is helping you navigate the market now and sort of what role you see it playing down the line?

Henry Logistics is a nice stories for 2020, certainly with the number of asset-based salespeople that we got in the market and also the number of customers that our asset companies allow Henry Logistics to have access to. We saw very nice growth in that area.

It really complements all the other services that we do and broadens our customers access to all the logistic services that many provide, but also that they are able to connect with the asset services of the company. Dan any additional comments from the elevated purchase transportation on the good side associated with Henry Logistics, certainly comes with margin.

So we can call that out.

Yeah I'd just say that although Henry Logistics is still a relatively small percentage of our total revenue, it's growing at a rapid pace and that year-over-year growth did accelerate as the year went on.

Thank you, operator and thanks again to everyone for joining us today. Please contact Tony with any additional questions that you may have.

This concludes our call and operator I am turning the call back to you.