Yellow Corporation (NASDAQ:YELL) Q4 2022 Earnings Call Transcript

Yellow Corporation (NASDAQ:YELL) Q4 2022 Earnings Call Transcript February 9, 2023

Operator: Good afternoon. And welcome to the Yellow Corporation’s Fourth Quarter 2022 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be a question-and-answer session. Please note, this event is being recorded. I would like to turn the conference over to Tony Carreno, Senior Vice President of Treasury and Investor Relations. Please go ahead.

Tony Carreno: Thank you, Operator, and good afternoon, everyone. Welcome to Yellow Corporation’s fourth quarter 2022 earnings conference call. Joining us on the call today are Darren Hawkins, Chief Executive Officer; and Dan Olivier, Chief Financial Officer. During this call, we may make some forward-looking statements within the meaning of federal securities laws. 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 the risk factors that could cause our results to differ, please refer to this afternoon’s earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q.

These items are also available on our website at myyellow.com. Additionally, please see today’s release for a reconciliation of net income or 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 and is available on our website. I will now turn the call over to Darren.

Darren Hawkins: Thanks, Tony, and good afternoon, everyone. Thank you for joining our call. In Q4, we saw a notable drop in demand for LTL capacity as the economy continued to cool down. With fully stocked inventories the retail sector had already begun to require less capacity from supply chain prior to Q4. During the quarter, the manufacturing sector also began to slow down following several quarters of growth. In response, we kept our focus on meeting our customers’ needs while adjusting our cost structure to help mitigate the near term headwinds. The adjustments, including reducing the size of our workforce to align with demand in addition to closely managing the use of purchase transportation, we also benefited from a gain on the sale of an excess terminal no longer needed as a result of the efficiencies from phase one of our network transformation.

We use the net proceeds from the sale of a down a portion of the term loan. Even in the face of an economic slowdown and declining tonnage this is one of the most stable LTL pricing environments we have experienced and many years. We have stayed consistent with our strategy of improving yield on the freight moving through Yellow’s network to improve profitability and offset inflationary cost pressures. In Q4 year-over-year LTL revenue per 100, including fuel increased 21.1% for the month of January Yellow average between 5% and 6% on contract negotiations, despite the economic slowdown later in the year, the company made significant financial improvement in 2022 and reported its best operating income and operating ratio since 2006. Turning to phase one of the network optimization in the western U.S. the real end and optimize terminal coverage positioned us closer to the customers, which has enabled us to make pickups and deliveries more efficient and timely both of which are critical to the Yellow customer experience.

Concerning the phase two network optimization in the Eastern U.S., we are following the same contractual process as phase one. The phase two recommended changes have been mailed to the local unions, and we are in process of meeting with those unions to field any questions or concerns around the optimization. We plan to communicate externally when an implementation date is determined. Looking ahead, our priorities in 2023 include continuing to enhance our customer experience with technology investments to provide new transactional capabilities and self service features on our website. We also plan to provide a streamlined suite of service offerings utilizing the speed of our super regional network. Serving our customers in a first class fashion will help us grow shipment count and profitably grow our company.

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

Dan Olivier: Thank you, Darren Good afternoon everyone. Full year 2022 operating revenue was 5.24 billion compared to 5.12 billion in 2021. Operating income in 2022 was 197.8 million, which included a 38 million net gain on property disposals. This compares to operating income of 103.6 million in 2021. Adjusted EBITDA for full year 2022 was 343.1 million, compared to 306 million in 2021. For the fourth quarter of 2022 operating revenue was 1.2 billion compared to 1.31 billion in 2021. And operating income was 40.3 million, including a net gain on property disposals 28.2 million. This compares to operating income of 55.8 million in the prior year. Adjusted EBITDA for the fourth quarter 2022 was 54.6 million, compared to 115.5 million in 2021.

The 8.3% decrease in year-over-year operating revenue in the fourth quarter was attributable to lower volume, partially offset by continued strong yield performance and higher fuel surcharge revenue. Including fuel surcharge fourth quarter LTL revenue per hundredweight was up 21.1% and LTL revenue per shipment was up 17.8% compared to a year ago. Excluding fuel surcharge LTL revenue per hundredweight was up 12.4% and LTL revenue per shipment was up 9.3%. LTL tonnage per day in the fourth quarter was down 25.1% driven by a 23% decrease in LTL shipments per day and a 2.8% decrease in LTL weight per ship. Sequential LTL tons per day trend compared to the prior year were as follows; October down 23.9%, November down 24.8% and December down 27.1%.

On a preliminary basis, January LTL tonnage for workday was down approximately 17% compared to last year. On a sequential basis from December to January, our LTL tonnage per day was up approximately 8% compared to our historical trend of down roughly 1%. Capital expenditures for the fourth quarter were 51.1 million, compared to 54.7 million a year ago. Total capital expenditures for 2022 were 191.8 million compared to 497.6 million in 2021. Total liquidity at the end of the fourth quarter is 241.8 million, compared to 358.8 million at the end of fourth quarter 2021. As a reminder, in December, we paid the remaining 42.8 million due for the deferral of certain payroll taxes under provisions of the Cares Act. In early January, we paid the remaining 66 million due on the CDA notes that matured at the end of 2022 consistent with the terms of the agreement.

The pay off of the CDA notes, combined with 32 million of net proceeds from the sale of excess facilities used to pay down the term loan have reduced our outstanding debt by nearly 100 million in the fourth quarter through early January. Much like the extension of our asset based lending facility in October, we continue to strengthen and simplify our capital structure. I will now turn the call back over to Darren for some closing comments.

Darren Hawkins: Thank you, Dan. 2022 was another year of tremendous progress at Yellow. When I think about our team’s accomplishments I’m very proud of our employees’ dedication and passion to meeting the needs of our customers and executing one of the largest network changes ever implemented by unionized LTL carrier. We expect customers, shareholders and employees to benefit from the execution of this multiyear strategy. As we head into 2023, which is just a year away from the company’s 100 year anniversary we couldn’t be more excited about the future of this company. Thanks for your time this afternoon. We would now be happy to answer any questions that you may have.

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Q&A Session

Operator: We will now begin the question and answer session. The first question today comes from Jack Atkins with Stephens. Please go ahead.

Jack Atkins: Hey, good afternoon, Darren and Dan. Thanks for taking my question this afternoon. I’m going to have more than one I promise. So good afternoon. So I guess maybe if we could start I don’t know who wants to take this with January? I think we’ve kind of heard pretty consistently for most folks was a little bit better than expected or better than feared. You’re seeing January up better than normal seasonality. Anything that you would attribute that to maybe an easy cop versus December just better weather. Just if you could maybe talk a little bit about that, that could be great.

Darren Hawkins: Yes, certainly, Jack. This is Darren. We were pleased with the direction of January, especially from a pricing standpoint, as well as those contract renewals were up 5% to 6%. And what we saw there was positive from a customer aspect. I’ll also comment now that we’ve got our entire sales force on the sales force technology I’m also encouraged with the pipeline that I’m seeing for Q1 and I think there’s opportunity for Yellow and the value proposition we’re bringing into the market. Dan, I’ll let you get into any more specifics.

Dan Olivier: Yes. Good afternoon. Jack. I talked a little bit about time. It’s trends, as I mentioned in my opening remarks, LTL tonnage per day on a year-over-year basis for the fourth quarter was down 25.1%. And that was roughly an 11% sequential decline from Q3 compared to our historical sequential decline of approximately 4%. Specifically November and December’s sequential declines were certainly more pronounced than what we would have expected. However, you could call out the sequential increase from December to January was up 8%, which was much better than historical average of a 1% decline. So when I think about the first quarter in its entirety, historical sequential change and LTL tonnage per day from Q4 to Q1 is typically about a 3% decline with January, outperforming that, and of course, we don’t yet know how weather could impact the remainder of the quarter But I believe we have a decent chance to outperform that historical 3% sequential decline.

Jack Atkins: No, that’s really helpful commentary and I guess, maybe kind of thinking about the bottom line impact from that. I know that the original plan, which would have been to perform in line with normal seasonality, if I’m not mistaken in the fourth quarter, but obviously the market had a different kind of idea, just given how challenging November, December were. Now that it feels like maybe things have stabilized a bit here in the first quarter, you’re going to have the benefits, maybe of one Yellow kind of showing up perhaps a bit more. I mean, can you maybe help us think about the seasonality of operating ratio versus the fourth quarter?

Darren Hawkins: Yes, Jack. So our OR for the fourth quarter was 96.6, which included the $28 million gain on property disposals. So excluding that OR would have been at about 99 which, as you call it out, is a little worse than we would have expected driven like I said, by the tonnage declines we saw in November and December. When I think about sequential changes now, from Q4 to Q1 we historically see degradation in OR about 200 basis points, and considering a few things, the sequential tonnage per day from December to January, which was a little better than we expected. But that also considering though, that we’re still incurring some costs associated with the execution of phase one, and in preparation for phase two. And now without expecting really any benefit from phase two during the first quarter I would expect we would probably be in line with that historical sequential change.