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Edited Transcript of YRCW.OQ earnings conference call or presentation 4-Feb-21 10:00pm GMT

·23 min read

Q4 2020 YRC Worldwide Inc Earnings Call OVERLAND PARK Feb 6, 2021 (Thomson StreetEvents) -- Edited Transcript of Yellow Corp earnings conference call or presentation Thursday, February 4, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anthony Carreño * Daniel L. Olivier YRC Worldwide Inc. - Interim CFO * Darren D. Hawkins YRC Worldwide Inc. - CEO & Director * Thomas J. O'Connor YRC Worldwide Inc. - COO ================================================================================ Conference Call Participants ================================================================================ * Jack Lawrence Atkins Stephens Inc., Research Division - MD & Analyst * Scott H. Group Wolfe Research, LLC - MD & Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to Yellow Corporation's Fourth Quarter 2020 Earnings Call. (Operator Instructions) I would now like to turn the conference over to Tony Carreño, Vice President of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Anthony Carreño, [2] -------------------------------------------------------------------------------- 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 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 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 D. Hawkins, YRC Worldwide Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Tony, and good afternoon, everyone. Thank you for joining our call. We are 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 will hear more about this from TJ. Despite the challenges the COVID-19 pandemic presented; in 2020, we remain 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 U.S. operations. We kicked off 2021 by continuing our network optimization efforts with the integration of 5 legacy national terminals into operations at a regional terminal in January. This allows us to now service 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 integrations 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 2 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 customers' needs, mitigating purchase transportation expense 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. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [4] -------------------------------------------------------------------------------- Thank you, Darren, and good afternoon, everyone. For the full year 2020, operating revenue was $4.51 billion compared to $4.87 billion in 2019. Operating income in 2020 was $56.5 million, which included a $45.3 million net gain on property sales. 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 sales. Adjusted EBITDA for the fourth quarter of 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 of 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 mentioned on the third quarter earnings call, the first $75 million of tranche B was requested and funded in October, $72 million of which was used to acquire more than 300 tractors and 1,200 trailers, most of which was in the back half of the quarter. As Darren mentioned, the next $176 million of 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 a 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 1,100 tractors, 1,900 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 progresses. With that, I will turn the call over to TJ. -------------------------------------------------------------------------------- Thomas J. O'Connor, YRC Worldwide Inc. - COO [5] -------------------------------------------------------------------------------- Thank you, Dan, and good afternoon, everyone. It is a very exciting time at Yellow. We have the opportunity to implement one of the largest capital expenditure plans in our company's history. This, combined with the progress we are making on 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 academies. We are 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 look internally and see great potential in our current employees, such as box truck drivers and dock workers who are 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, benefits decreased by $26 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 HNRY logistics. The remaining increase in purchase transportation is primarily due to the use of expensive local cartage 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 on driver availability. We expect that by continuing to focus on hiring and training drivers, it will help reduce cartage expense. Finally, as we purchase the tractors, trailers and containers in 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 quarters in 2021. The intermodal change of operations in Memphis was executed as planned in December as an example of the coordinated 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 5 states. Customers will now have access to faster transit times and more streamlined supply chains, 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 will operate with one set of technologies, refined to support a super-regional model. In closing, I would like to thank our dedicated and safety minded professionals at Yellow. Even in the face of a pandemic, the challenged supply chains 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. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [6] -------------------------------------------------------------------------------- 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 tight 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. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Our first question today will come from Jack Atkins with Stephens. -------------------------------------------------------------------------------- Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [2] -------------------------------------------------------------------------------- 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 sorts of impacts or savings we can expect in '21? -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [3] -------------------------------------------------------------------------------- We're not going to give any specific guidance around that. But what I'll say is, we certainly expect to achieve lower maintenance costs as we bring on the new tractors and trailers, and of course, improved 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 as 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 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. -------------------------------------------------------------------------------- Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [4] -------------------------------------------------------------------------------- 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, just stuff like that? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [5] -------------------------------------------------------------------------------- And at Yellow, it's all about the customer. Everything we're doing, when we talk 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 in 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 were 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'm confident from a customer perspective and the demand levels we're seeing that pricing will remain favorable, and we're proud of the customer base that continues to choose Yellow on a daily basis. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from Scott Group with Wolfe Research. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [7] -------------------------------------------------------------------------------- Darren, you had noted in your prepared remarks that, that contract renewals, I think, were up 6% in the month of January. Can you give us an update what those were in the fourth quarter? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [8] -------------------------------------------------------------------------------- Yes. In fourth quarter, it was 5.6%. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [9] -------------------------------------------------------------------------------- And has YRC announced a general rate increase? I don't think I'd seen one last time I kind of had gone through, but curious if you guys have announced one early this year. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [10] -------------------------------------------------------------------------------- We did. It's nice timing. It went into effect this past Monday at 5.9%. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [11] -------------------------------------------------------------------------------- I guess, to -- you guys obviously, are renaming 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 of continue to operate with multiple brands in the marketplace from a customer-facing perspective. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [12] -------------------------------------------------------------------------------- Yes. 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 expect it to increase our property, our rolling stock asset utilization. It's going to give us expanded service offerings. It will leverage the operational flexibilities that we gained in the 2019 labor agreement. It will consolidate all of 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. We'll operate under one Yellow brand as a super-regional carrier. Now in the time frame 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 5 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. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [13] -------------------------------------------------------------------------------- And I guess, Darren, as we think about kind of the process of this transformation into a super-regional carrier. How should we think about kind of the cadence and the cost saving opportunity for the broader company? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [14] -------------------------------------------------------------------------------- Yes. 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 had Holland and YRC Freight operating separately. Today, they're operating together. So rather than having 2 drivers from 2 -- from 2 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 Penn, moving over to the same technology platform as YRC Freight, then Holland and Reddaway will follow that. Over that time period, we will also be adjusting the network. The good thing is our networks operate as 3 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. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions) Seeing no further questions. This will conclude our question-and-answer session. I'd like to turn the call back over to the company for any closing remarks. My apologies, we do have actually -- we have a follow-up now from Scott Group with Wolfe Research. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [16] -------------------------------------------------------------------------------- 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 it, roughly $150 million. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [17] -------------------------------------------------------------------------------- As I mentioned in my opening comments, we expect that during the first quarter alone, we expect to acquire approximately 1,100 tractors and 1,900 trailers, and we would expect the majority of the $176 million to be spent in the next 2 to 3 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 hands on that. And that's somewhat dependent on the OEMS, the earlier we can get that equipment, the better it is for us. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [18] -------------------------------------------------------------------------------- And are you guys buying exclusively new with the treasury funds? Are you 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. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [19] -------------------------------------------------------------------------------- Sure. Yes. The vast majority of the equipment in our CapEx plans for the entire year, not just the tranche B is going to be on new tractors and trailers. We also -- because of our liquidity position and the support of the tranche B fund, we're not entering into any new leases in 2021, and there are quite a few lease buyouts that we'll be doing during 2021 as well. -------------------------------------------------------------------------------- Scott H. Group, Wolfe Research, LLC - MD & Senior Analyst [20] -------------------------------------------------------------------------------- And Dan, are those front-end loaded, back-end loaded? And how should we think about the magnitude of the buyout from a capital deployment perspective? -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [21] -------------------------------------------------------------------------------- Yes. The lease buyouts will happen just as they come due as they reach end of lease. So those are going to be spread fairly evenly throughout the year. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- And we have an additional question from Jack Atkins with Stephens. -------------------------------------------------------------------------------- Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [23] -------------------------------------------------------------------------------- I had a question about the LTL demand landscape and sort of how that impacts your network optimization plans. It seems like we've seen -- or we're continuing to see some resiliency among shippers in the traditional end markets, but it 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, et cetera? Or are there some new found needs or opportunity set that sort of popped up over the last 9 months that you've identified that you might look to execute on this year? -------------------------------------------------------------------------------- Thomas J. O'Connor, YRC Worldwide Inc. - COO [24] -------------------------------------------------------------------------------- Happy to take that question. Thanks for asking. What we see, we're well positioned, first off, on the e-commerce, and we do a fair amount of business with large, medium and small e-commerce players. What we are seeing is that -- and why I feel that 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. We stay in touch, obviously, very closely with these e-commerce players, and they communicate very well with us in terms of their anticipated 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, where they've not been able to gain capacity that they need for their pretty robust growth that they're seeing really, particularly since COVID. So there is a reflection of what's going on related to COVID and the pandemic with those e-commerce shippers, and they have increasing needs for capacity. -------------------------------------------------------------------------------- Jack Lawrence Atkins, Stephens Inc., Research Division - MD & Analyst [25] -------------------------------------------------------------------------------- If I could trouble you with one more here. HNRY Logistics, could you speak a little bit to the strategic importance and complement to the rest of your business in sort of how that has or is helping you navigate the market now and sort of what role you see it playing down the line? -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [26] -------------------------------------------------------------------------------- HNRY Logistics is a nice story for 2020. Certainly, with the number of asset-based salespeople that we've got in the market and also the number of customers at our asset companies allow HNRY 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 logistics 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 goods side associated with HNRY Logistics certainly comes with margin. So we can call that out. -------------------------------------------------------------------------------- Daniel L. Olivier, YRC Worldwide Inc. - Interim CFO [27] -------------------------------------------------------------------------------- Yes. I would just say that although HNRY 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. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- This will conclude our Q&A session, and I'd like to turn the call back over to the company for any closing remarks. -------------------------------------------------------------------------------- Darren D. Hawkins, YRC Worldwide Inc. - CEO & Director [29] -------------------------------------------------------------------------------- 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'm turning the call back to you. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.