Yellow Corp (YELL) 2018 Q4 法說會逐字稿

Good morning, and welcome to YRC Worldwide's Fourth Quarter 2018 Earnings Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Bri Simoneau, Vice President and Controller. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to YRC Worldwide's Fourth Quarter and Year-End 2018 Earnings Conference Call. Joining us on the call today are Darren Hawkins, Chief Executive Officer of YRC Worldwide; Stephanie Fisher, Chief Financial Officer of YRC Worldwide; and T.J. O'Connor, President of YRC Freight.

Before we begin, I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. 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 thus, actual results may differ materially. This includes statements regarding the company's expectations, assumptions of future events and intentions on strategies regarding the future. 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 the results to differ, please refer to this morning's earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q. These items are available on our website at yrcw.com.

Additionally, please see today's release for a reconciliation of net income to adjusted EBITDA on a consolidated basis and operating income to adjusted EBITDA on a segment basis. During this call, we may refer to our non-GAAP measure of adjusted EBITDA, simply as EBITDA.

In conjunction with today's earnings release, we issued a presentation, which will be referenced during the call. The presentation was filed in an 8-K, along with the earnings release and is available on our website.

The format of this morning's call includes a fourth quarter and full year 2018 overview from Darren; followed by Stephanie, who will discuss our financial results; and T.J., who will provide an update on YRC Freight. As a reminder, the YRCW companies, YRC Freight, Holland and New Penn and the International Brotherhood of Teamsters are currently engaged in negotiation for a new collective bargaining agreement. The current contract expires March 31, 2019. In consideration of these negotiations, we will not be taking any questions on today's call. We appreciate your understanding and will update you as appropriate.

I'll now turn the call over to Darren.

Thank you, Bri, and good morning, everyone. Our results this quarter and in 2018, particularly in the back half of the year showed that we are executing well against our plan that focused on yield achievement, new equipment acquisitions, technology investments and reducing our short-term rentals and local purchase transportation costs. I believe strongly that these focus areas are moving us in the right direction as a company and should create momentum for 2019.

The year-end and fourth quarter results for YRCW include improvements in revenue, operating income, operating ratio and yield. Our operating income showed a fourth quarter year-over-year improvement of $37.3 million and a full year improvement of $28.2 million. Our full year adjusted EBITDA showed a $63.3 million gain over 2017 with a consolidated adjusted EBITDA of $337.5 million. When excluding the $29.3 million gain from the partial sale of the YRC Freight Facility, the full year adjusted EBITDA grew by approximately $34 million.

The acquisition of new revenue equipment continues to prove itself out as an important part of our improvement story. We added approximately 1,400 tractors and 3,800 trailers in 2018. The addition of new equipment generates positive returns due to enhanced safety technology, improved fuel mileage, lower vehicle maintenance expense and enhanced driver satisfaction while driving short-term rentals out of our network. The equipment momentum along with the productivity improvements are supporting the improved results in short-term rentals and local purchase transportation, which resulted in a $9.3 million reduction for the full year.

Even though our tonnage continues to trend down, we will prioritize rolling stock investment, asset utilization and positive yield over volume in 2019. Ultimately, it is our intent to make sure our customers have the capacity and service available from our networks that supports their supply chains and also protects our margin.

In reference to our contractual negotiations with the International Brotherhood of Teamsters, we are highly focused on reaching an agreement that is good for our employees, customers and shareholders. As we work toward a new collective bargaining agreement, we will continue to take care of our customers and move the business forward through a continued focus on pricing discipline, new equipment and technology, network optimization and the utilization of HNRY Logistics to grow revenue at our asset companies while also expanding the asset-light options to present a one-stop shop for our customer base.

In closing, I am proud to say that we ended 2018, delivering on the items we said we would, which led to expanded revenue, while executing on our yield strategy. These results are a reflection of the hard work and constant safety focus of our 31,000 employees, and I appreciate all that they do to keep this company moving forward. We are confident that our continued focus in these areas should enable us to deliver long-term shareholder value.

With these comments, I will now turn the call over to Stephanie for a review of our financial results.

Thank you, Darren, and good morning, everyone. For the fourth quarter 2018, YRC Worldwide reported consolidated revenue growth of 3.2% to $1.25 billion, which is up from the $1.21 billion in the fourth quarter 2017. For the full year 2018, consolidated revenue increased 4.1% to $5.1 billion, which is up from the $4.89 billion in prior year. The fourth quarter and full year increase in revenue are preliminary (sic) [primarily] related to higher yield and fuel surcharge revenue.

Operating income for the fourth quarter was $59.4 million, which included a net gain on property disposals of $28.1 million. This compares to operating income of $22.1 million, which included a net gain on property disposals of $3.6 million in the fourth quarter 2017. For the full year 2018, the company reported consolidated operating income of $147.2 million compared to $119 million in 2017. Additionally, the company reported $106.8 million in adjusted EBITDA for the fourth quarter 2018 compared to $58.5 million for the same period last year. For the full year, adjusted EBITDA was $337.5 million compared to $274.2 million in 2017.

As Darren noted, our improvement in full year operating results demonstrates our firm commitment to drive better execution in the following key areas: First, we prioritized yield expansion over tonnage; second, for the full year, we reduced our local purchase transportation cost by more than $12 million when compared to 2017; third, fueled by our revenue equipment investment, we decreased our usage of short-term rentals and vehicle maintenance expense in the back half of the year; and finally, our continued attention toward safety initiatives provides solid improvement for our full year results. Excluding costs associated with one significant event in 2018, we improved our workers' compensation and third-party claim expenses by nearly $11 million.

Moving to our operating stats. I'd like to start by highlighting a few key fourth quarter steps for YRC Freight. The fourth quarter 2018 year-over-year tonnage per day was down 3.4%. This was comprised of year-over-year decreases of 7.1% in October, 1.4% in November and 1.4% in December. For the fourth quarter 2018, year-over-year revenue per hundredweight, including fuel surcharge, was up 8% and revenue per hundredweight, excluding fuel surcharge, was up 6.5%. Year-over-year revenue per shipment, including fuel surcharge, was up 5.6% and up 4.2% when excluding fuel surcharge.

Turning to the stats for the Regional segment. The fourth quarter 2018 year-over-year tonnage per day was down 6.6%. This was comprised of year-over-year decreases of 5.5% in October, 6.5% in November and 7.7% in December. For the fourth quarter 2018, year-over-year revenue per hundredweight, including fuel surcharge, was up 8% and revenue per hundredweight, excluding fuel surcharge, was up 6.8%. Year-over-year revenue per shipment, including fuel surcharge, was up 8.2% and up 6.9% when excluding fuel surcharge.

Moving into January. Our preliminary tonnage results indicate YRC Freight's year-over-year tonnage per day was down approximately 4.1%, while the Regional segment's year-over-year tonnage per day was down approximately 5.7%. Our fourth quarter customer contract renewals have averaged 8.4% for YRC Freight and 6.2% for the Regional segment, which are positive indicators as we move into 2019. For further reference, the earnings release and presentation issued this morning includes full segment financial information and statistics.

Turning to liquidity. I'm pleased with our continued progress to improve our cash flow. Our cash and cash equivalents and Managed Accessibility under the ABL facility at December 31, 2018, was approximately $208 million, which is an improvement of approximately $90 million compared to December 31, 2017. The company's total debt at the end of 2018 was $890 million, which is a reduction of approximately $36 million compared to a year ago.

This brings me to our credit facility covenant update as of December 31, 2018. Our funded debt to adjusted EBITDA ratio was 2.64x compared to a maximum credit facility covenant of 3.5x. The covenant maximum steps down to 3.25x through the first 3 quarters of 2019 and down to 3x by the end of 2019. As Darren stated at the start of this call, we remain committed to our plans to invest in revenue equipment.

For full year 2018, we spent $145.4 million on capital expenditures, an increase of more than 40% when compared to 2017. Additionally, we entered into new leases for revenue equipment with a capital value equivalent of $212.6 million for a total capital investment of $358 million or 7% of operating revenue, which is an increase of more than $121 million over prior year.

For 2019, our capital investment plans, inclusive of capital expenditures for revenue equipment and technology and the CapEx equivalent for revenue equipment acquired through long-term leasing, will be to invest at a rate of approximately 6% to 7% of consolidated operating revenues.

As you may have heard in recent news, our primary third-party carrier payable agent, IPS Worldwide, LLC, filed a petition for Chapter 11 bankruptcy on January 25, 2019. We are currently evaluating the impact this filing could have on our 2018 consolidated financial statement. At this time, the company is unable to reasonably estimate the potential impact of the bankruptcy based on the known facts. However, the company believes the impact to our consolidated results of operations, when resolved, is projected to be less than $10 million.

We believe the backdrop going into 2019 is positive and the longer-term trend should remain steady. We are committed to providing the capacity our customers demand and we will continue to identify opportunities to improve our operating performance.

At this time, I'll turn the call over to T.J. to discuss YRC Freight.

Thank you, Stephanie, and good morning, everyone. We are pleased with the overall financial results for YRC Freight in the fourth quarter, which saw our steady cadence of year-over-year quarterly adjusted EBITDA improvement throughout 2018 expand as we finish out the year. While our fourth quarter operating income and adjusted EBITDA results were certainly enhanced by the sale of one of the 2 docks at our Harrisburg, PA facility, our underlying financial results showed solid year-over-year improvement even without the benefit of this sale. Driving this financial improvement was a continuation of our efforts to: Improve the yield on the business we handle, acquire additional revenue equipment, closely manage the use of local purchase transportation providers and short-term equipment rentals as well as continued investment in our safety culture.

For the full year of 2018, YRC Freight recorded our best operating income, operating ratio and adjusted EBITDA results since 2007 prior to the combination of the legacy Yellow and Roadway brands into YRC Freight. I believe this validates our approach of carefully managing the volume of business we are handling to optimize our network and enhance our profitability.

As a reminder, at this time last year, we had recently implemented our network enhancement, which converted 8 existing facilities into distribution centers. This change was designed to create additional capacity and throughput capabilities for our network while reducing cost, and after 1 year of operation, we are achieving our desired results. We have seen meaningful reductions in both driver lodging and driver delay pay. The number of freight diversions were down over 50% in 2018 compared to each of the prior 2 years, which improved network flow. Our line haul meet-and-turn operations are performing well and the reintroduction of utility employees has been an important part of our network design. We obtained customer contract increases averaging 8.4% in the fourth quarter. This was the highest quarter of the year and should be a positive indicator looking forward for us.

As always, I would like to thank all members of the YRC Freight team for the continued efforts to meet our customers' needs and expectations each and every day.

Thank you for your time this morning. I'll now turn the call back to you, Darren.

Thank you, T.J. Thanks again to everyone for joining us today. Please contact Bri with any follow-up questions that you may have. This concludes our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.