Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included elsewhere in this report. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include those preceded by, followed by or characterized by words such as “will,” “expect,” “intend,” “anticipate,” “believe,” “could,” “should,” “may,” “project,” “forecast,” “propose,” “plan,” “designed,” “estimate,” “enable” and similar expressions which speak only as of the date the statement was made. Forward-looking statements are inherently uncertain, are based upon current beliefs, assumptions and expectations of Company management and current market conditions, and are subject to significant business, economic, competitive, regulatory and other risks, uncertainties and contingencies, known and unknown, many of which are beyond our control. Readers are cautioned not to place undue reliance on any forward-looking statements. Our future financial condition and results could differ materially from those predicted in such forward-looking statements because of a number of business, financial and liquidity, and common stock related factors, including (without limitation):
The impact of compliance with Executive Order 14042 and any Federal Occupational Safety and Health Administration requirements, each as applicable, regarding mandatory COVID-19 vaccinations and testing of non-vaccinated employees, respectively;
our ability to attract and retain qualified drivers and increasing costs of driver compensation;
the risk of labor disruptions or stoppages if our relationship with our employees and unions were to deteriorate;
general economic factors, including (without limitation) impacts of COVID-19 and customer demand in the retail and manufacturing sectors;
the widespread outbreak of an illness or any other communicable disease, including the effects of pandemics comparable to COVID-19, or any other public health crisis, as well as regulatory measures implemented in response to such events;
interruptions to our computer and information technology systems and sophisticated cyber-attacks;
business risks and increasing costs associated with the transportation industry, including increasing equipment, operational and technology costs, disruption from natural disasters, and impediments to our operations and business resulting from anti-terrorism measures;
competition and competitive pressure on pricing;
changes in pension expense and funding obligations, subject to interest rate volatility;
increasing costs relating to our self-insurance claims expenses;
our ability to comply and the cost of compliance with, or liability resulting from violation of, federal, state, local and foreign laws and regulations, including (without limitation) labor laws and laws and regulations regarding the environment and climate change initiatives;
the impact of claims and litigation expense to which we are or may become exposed;
that we may not realize the expected benefits and costs savings from our performance and operational improvement initiatives;
a significant privacy breach or IT system disruption;
our dependence on key employees;
our ability to finance the maintenance, acquisition and replacement of revenue equipment and other necessary capital expenditures;
seasonality and the impact of weather;
shortages of fuel and changes in the cost of fuel or the index upon which we base our fuel surcharge and the effectiveness of our fuel surcharge program in protecting us against fuel price volatility;
risks of operating in foreign countries;
our failure to comply with the covenants in the documents governing our existing and future indebtedness;
our ability to generate sufficient liquidity to satisfy our indebtedness and cash interest payment obligations, lease obligations and pension funding obligations;
fluctuations in the price of our common stock;
13
dilution from future issuances of our common stock;
we are not permitted to pay dividends on our common stock in the foreseeable future;
that we have the ability to issue preferred stock that may adversely affect the rights of holders of our common stock; and
other risks and contingencies, including (without limitation) the risk factors that are included in our reports filed with the SEC, including those described under “Risk Factors” in our annual report on Form 10-K and quarterly reports on Form 10-Q, including this quarterly report.
Overview
MD&A includes the following sections:
Our Business: a brief description of our business and a discussion of how we assess our operating results.
Consolidated Results of Operations: an analysis of our consolidated results of operations for the three and nine months ended September 30, 2021 and 2020.
Certain Non-GAAP Financial Measures: presentation and an analysis of selected non-GAAP financial measures for the three and nine months ended September 30, 2021 and 2020 and trailing-twelve-months ended September 30, 2021 and 2020.
Financial Condition, Liquidity and Capital Resources: a discussion of our major sources and uses of cash and an analysis of our cash flows and, if applicable, material changes in our contractual obligations and commercial commitments.
The “third quarter” and “first three quarters” of the years discussed below refer to the three and nine months ended September 30, respectively.
Our Business
Yellow Corporation is a holding company that, through its operating subsidiaries, offers our customers a wide range of transportation services. The Company has one of the largest, most comprehensive LTL networks in North America with local, regional, national and international capabilities. Through its team of experienced service professionals, the Company offers industry-leading expertise in LTL shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence.
We measure the performance of our business using several metrics, but rely primarily upon (without limitation) operating revenue, operating income (loss), and operating ratio. We also use certain non-GAAP financial measures as secondary measures to assess our operating performance.
Operating Revenue: Our operating revenue has two primary components: volume (commonly evaluated using tonnage, tonnage per day, number of shipments, shipments per day or weight per shipment) and yield or price (commonly evaluated using picked up revenue, revenue per hundredweight or revenue per shipment). Yield includes fuel surcharge revenue, which is common in the trucking industry and represents an amount charged to customers that adjusts with changing fuel prices. We base our fuel surcharges on the U.S. Department of Energy fuel index and adjust them weekly. Rapid material changes in the index or our cost of fuel can positively or negatively impact our revenue and operating income as a result of changes in our fuel surcharge. We believe that fuel surcharge is an accepted and important component of the overall pricing of our services to our customers. Without an industry accepted fuel surcharge program, our base pricing for our transportation services would require changes. We believe the distinction between base rates and fuel surcharge has blurred over time, and it is impractical to clearly separate all the different factors that influence the price that our customers are willing to pay. In general, under our present fuel surcharge program, we believe rising fuel costs are beneficial to us and falling fuel costs are detrimental to us in the short term, the effects of which are mitigated over time.
Operating Income (Loss): Operating income (loss) is operating revenue less operating expenses.
Operating Ratio: Operating ratio is a common operating performance measure used in the trucking industry. It is calculated as (i) 100 percent (ii) minus the result of dividing operating income by operating revenue or (iii) plus the result of dividing operating loss by operating revenue, and is expressed as a percentage.
14
Non-GAAP Financial Measures: We use EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, to assess the following:
o
EBITDA: a non-GAAP measure that reflects our earnings before interest, taxes, depreciation, and amortization expense. EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance.
o
Adjusted EBITDA: a non-GAAP measure that reflects EBITDA, and further adjusts for letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, restructuring charges, transaction costs related to issuances of debt, non-recurring consulting fees, non-cash impairment charges and the gains or losses from permitted dispositions, discontinued operations, and certain non-cash expenses, charges and losses (provided that if any of such non-cash expenses, charges or losses represents an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period will be subtracted from Consolidated EBITDA in such future period to the extent paid). All references to “Adjusted EBITDA” throughout this section and the rest of this report refer to “Adjusted EBITDA” calculated under our UST Credit Agreements and the Term Loan Agreement (collectively, the “TL Agreements”) (defined therein as “Consolidated EBITDA”) unless otherwise specified. Consolidated EBITDA is also a defined term in our ABL Facility and the definition there aligns with the prior definition of Consolidated EBITDA under the Prior Term Loan Agreement. Adjusted EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance, to measure compliance with financial covenants in our TL Agreements and to determine certain management and employee bonus compensation.
We believe our presentation of EBITDA and Adjusted EBITDA is useful to investors and other users as these measures represent key supplemental information our management uses to compare and evaluate our core underlying business results, particularly in light of our leverage position and the capital-intensive nature of our business. Further, EBITDA is a measure that is commonly used by other companies in our industry and provides a comparison for investors to evaluate the performance of the companies in the industry. Additionally, Adjusted EBITDA helps investors to understand how the company is tracking against our financial covenant in our TL Agreements as this measure is calculated as defined in our TL Agreements and serves as a driving component of our key financial covenants.
Our non-GAAP financial measures have the following limitations:
o
EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt;
o
Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt, letter of credit fees, restructuring charges, transaction costs related to the issuance of debt, non-cash expenses, charges or losses, or nonrecurring consulting fees, among other items;
o
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will generally need to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
o
Equity-based compensation is an element of our long-term incentive compensation package, although Adjusted EBITDA excludes employee equity-based compensation expense when presenting our ongoing operating performance for a particular period; and
o
Other companies in our industry may calculate Adjusted EBITDA differently than we do, potentially limiting its usefulness as a comparative measure.
Because of these limitations, our non-GAAP measures should not be considered a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and use our non-GAAP measures as secondary measures.
Business Strategy Overview and Update
Our strategy is focused on our multi-year enterprise transformation to optimize and structurally improve our network that includes more than 300 strategically located terminals throughout North America. The transformation is expected to increase asset utilization, expand service offerings, leverage operational flexibilities gained with our 2019 labor agreement, consolidate disparate company systems onto a single platform and rationalize the more than 300 physical locations in the network while
15
maintaining geographic coverage. The result will be to operate as one Yellow company, one Yellow network, under one Yellow brand that provides great super-regional service.
Capital investment remains a top priority for us. Our UST Credit Agreements have enabled us to significantly increase the amount of capital we are able to invest in revenue equipment to improve the age of our fleet as there is an immediate return in improved fuel miles per gallon and expected reduced vehicle maintenance expense. To properly execute on our transformation plan, we are committed to continued investing in technology in order to enhance the customer experience and improve our operational flexibilities. We expect to spend between $480 million and $530 million on capital investments during 2021. During the third quarter ended September 30, 2021 we migrated Reddaway to the common technology platform that is now shared with YRC Freight and New Penn. We intend to move Holland to the common technology platform near December 31, 2021.
Consolidated Results of Operations
The table below provides summary consolidated financial information for the third quarter and first three quarters of 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Three Quarters
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Percentage
Change in
Dollar Amounts
|
|
(Amounts in millions)
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
Third
Quarter
%
|
|
First Three
Quarters
%
|
|
Operating Revenue
|
$
|
1,301.4
|
|
|
100.0
|
|
$
|
1,183.4
|
|
|
100.0
|
|
$
|
3,812.9
|
|
|
100.0
|
|
$
|
3,349.2
|
|
|
100.0
|
|
|
|
10.0
|
|
|
13.8
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
729.7
|
|
|
56.1
|
|
|
720.6
|
|
|
60.9
|
|
|
2,204.8
|
|
|
57.8
|
|
|
2,088.7
|
|
|
62.4
|
|
|
|
1.3
|
|
|
5.6
|
|
Fuel, operating expenses and supplies
|
|
216.1
|
|
|
16.6
|
|
|
175.4
|
|
|
14.8
|
|
|
636.6
|
|
|
16.7
|
|
|
546.1
|
|
|
16.3
|
|
|
|
23.2
|
|
|
16.6
|
|
Purchased transportation
|
|
200.3
|
|
|
15.4
|
|
|
177.1
|
|
|
15.0
|
|
|
610.6
|
|
|
16.0
|
|
|
439.3
|
|
|
13.1
|
|
|
|
13.1
|
|
|
39.0
|
|
Depreciation and amortization
|
|
37.8
|
|
|
2.9
|
|
|
32.5
|
|
|
2.7
|
|
|
106.1
|
|
|
2.8
|
|
|
102.4
|
|
|
3.1
|
|
|
|
16.3
|
|
|
3.6
|
|
Other operating expenses
|
|
68.9
|
|
|
5.3
|
|
|
58.4
|
|
|
4.9
|
|
|
205.5
|
|
|
5.4
|
|
|
175.2
|
|
|
5.2
|
|
|
|
18.0
|
|
|
17.3
|
|
(Gains) losses on property disposals, net
|
|
0.2
|
|
|
0.0
|
|
|
—
|
|
|
-
|
|
|
1.5
|
|
|
0.0
|
|
|
(45.3
|
)
|
|
(1.4
|
)
|
|
NM*
|
|
NM*
|
|
Total operating expenses
|
|
1,253.0
|
|
|
96.3
|
|
|
1,164.0
|
|
|
98.4
|
|
|
3,765.1
|
|
|
98.7
|
|
|
3,306.4
|
|
|
98.7
|
|
|
|
7.6
|
|
|
13.9
|
|
Operating Income
|
|
48.4
|
|
|
3.7
|
|
|
19.4
|
|
|
1.6
|
|
|
47.8
|
|
|
1.3
|
|
|
42.8
|
|
|
1.3
|
|
|
|
149.5
|
|
|
11.7
|
|
Nonoperating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses, net
|
|
40.1
|
|
|
3.1
|
|
|
32.3
|
|
|
2.7
|
|
|
111.0
|
|
|
2.9
|
|
|
96.4
|
|
|
2.9
|
|
|
|
24.1
|
|
|
15.1
|
|
Income (loss) before income taxes
|
|
8.3
|
|
|
0.6
|
|
|
(12.9
|
)
|
|
(1.1
|
)
|
|
(63.2
|
)
|
|
(1.7
|
)
|
|
(53.6
|
)
|
|
(1.6
|
)
|
|
NM*
|
|
NM*
|
|
Income tax expense (benefit)
|
|
—
|
|
|
-
|
|
|
(10.9
|
)
|
|
(0.9
|
)
|
|
1.2
|
|
|
0.0
|
|
|
(18.8
|
)
|
|
(0.6
|
)
|
|
NM*
|
|
NM*
|
|
Net Income (loss)
|
$
|
8.3
|
|
|
0.6
|
|
$
|
(2.0
|
)
|
|
(0.2
|
)
|
$
|
(64.4
|
)
|
|
(1.7
|
)
|
$
|
(34.8
|
)
|
|
(1.0
|
)
|
|
NM*
|
|
NM*
|
|
*Not meaningful
Third Quarter of 2021 Compared to the Third Quarter of 2020
The industry is currently in a tight capacity environment with fewer drivers available to meet shipping demands, which has led to price increases charged to customers and an increase in the cost of purchased transportation. The Company’s yield growth, including fuel surcharge, produced a consolidated operating revenue increase of $118.0 million compared to the third quarter of 2020 with an internal focus of retaining the optimal freight mix relative to human capital availability throughout the third quarter of 2021. Partially offsetting the positive yield growth, the Company experienced shipping volume decreases compared to the third quarter of 2020. Further, the results of operations in the third quarter of 2020 were impacted by the outbreak of COVID-19 as shipping volumes decreased from typical levels in certain markets and negatively impacted the pricing environment.
The Company’s results reflect these revenue increases offset by increased purchased transportation expenses, fuel expense and variable expenses including salaries, wages and benefits. Further material changes are provided below.
Salaries, wages and employee benefits. Salaries, wages and employee benefits increased $9.1 million primarily due to contractual wage rate increases. Additionally, in response to volume declines in the third quarter of 2020, the Company reduced variable expenses including labor through furloughs and reduced headcount.
Fuel, operating expenses and supplies. Fuel, operating expenses and supplies increased $40.7 million primarily due to a $23.1 million increase in fuel expense, which was largely a result higher fuel prices. Additional increases resulted from higher usage of professional services and our rebranding initiative.
Purchased transportation. Purchased transportation increased $23.2 million primarily due to significant rate increases and other factors noted above. These increases were noted in most of our modes of purchased transportation and include an $11.3 million increase in third-party costs due to the growth in customer-specific logistics solutions, a $9.0 million increase in over-the-road
16
purchased transportation expense and an $8.0 million increase in rail purchased transportation expense. These increases were partially offset by a decrease in vehicle rentals and usage of local purchased transportation.
Other operating expenses. Other operating expenses increased $10.5 million primarily due to a $7.2 million increase in third-party liability claims expense mostly due to unfavorable development of prior year claims and a $4.2 million increase in cargo claims.
Income tax. Our effective tax rate for the third quarter of 2021 and 2020 was 0.0% and 83.8%, respectively. There are no significant items impacting the 2021 rate. The most significant item impacting the 2020 rate was a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation. Due to an accounting standard change that was effective for the Company on January 1, 2021 this exception to the rules regarding intraperiod tax allocation is not applicable to the 2021 rate. The Company had a full valuation allowance against our domestic net deferred tax assets as of the relevant reporting periods.
The table below summarizes the key revenue metrics for the third quarter of 2021 compared to the third quarter of 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Percent
Change(a)
|
|
Workdays
|
|
|
63.5
|
|
|
|
64.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio
|
|
|
96.3
|
%
|
|
|
98.4
|
%
|
|
2.1 pp
|
|
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
|
$
|
1,167.0
|
|
|
$
|
1,076.1
|
|
|
|
8.4
|
%
|
LTL tonnage (in thousands)
|
|
|
2,323
|
|
|
|
2,584
|
|
|
|
(10.1
|
%)
|
LTL tonnage per workday (in thousands)
|
|
|
36.58
|
|
|
|
40.38
|
|
|
|
(9.4
|
%)
|
LTL shipments (in thousands)
|
|
|
4,141
|
|
|
|
4,480
|
|
|
|
(7.6
|
%)
|
LTL shipments per workday (in thousands)
|
|
|
65.22
|
|
|
|
70.00
|
|
|
|
(6.8
|
%)
|
LTL picked up revenue per hundred weight
|
|
$
|
25.12
|
|
|
$
|
20.82
|
|
|
|
20.7
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
|
$
|
21.84
|
|
|
$
|
18.90
|
|
|
|
15.6
|
%
|
LTL picked up revenue per shipment
|
|
$
|
282
|
|
|
$
|
240
|
|
|
|
17.3
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
|
$
|
245
|
|
|
$
|
218
|
|
|
|
12.4
|
%
|
LTL weight per shipment (in pounds)
|
|
|
1,122
|
|
|
|
1,154
|
|
|
|
(2.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)(b)
|
|
$
|
1,283.2
|
|
|
$
|
1,179.1
|
|
|
|
8.8
|
%
|
Total tonnage (in thousands)
|
|
|
3,045
|
|
|
|
3,295
|
|
|
|
(7.6
|
%)
|
Total tonnage per workday (in thousands)
|
|
|
47.96
|
|
|
|
51.49
|
|
|
|
(6.9
|
%)
|
Total shipments (in thousands)
|
|
|
4,257
|
|
|
|
4,609
|
|
|
|
(7.6
|
%)
|
Total shipments per workday (in thousands)
|
|
|
67.05
|
|
|
|
72.02
|
|
|
|
(6.9
|
%)
|
Total picked up revenue per hundred weight
|
|
$
|
21.07
|
|
|
$
|
17.89
|
|
|
|
17.8
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
|
$
|
18.40
|
|
|
$
|
16.29
|
|
|
|
13.0
|
%
|
Total picked up revenue per shipment
|
|
$
|
301
|
|
|
$
|
256
|
|
|
|
17.8
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
|
$
|
263
|
|
|
$
|
233
|
|
|
|
13.0
|
%
|
Total weight per shipment (in pounds)
|
|
|
1,431
|
|
|
|
1,430
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2021
|
|
|
2020
|
|
(b) Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
1,301.4
|
|
|
$
|
1,183.4
|
|
Change in revenue deferral and other
|
|
|
(18.2
|
)
|
|
|
(4.3
|
)
|
Total picked up revenue
|
|
$
|
1,283.2
|
|
|
$
|
1,179.1
|
|
(a)
Percent change based on unrounded figures and not the rounded figures presented.
(b)
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact of other revenue.
17
First Three Quarters of 2021 Compared to the First Three Quarters of 2020
Consistent with the third quarter of 2021, the results of operations in the first three quarters of 2021 were impacted by a tight capacity environment with fewer drivers available to meet shipping demands. This has contributed to price increases charged to customers and an increase in the cost of purchased transportation. Results in 2021 were impacted by significant yield growth on relatively similar shipping volume levels compared to the same period in 2020. The first three quarters of 2020 were impacted by the outbreak of COVID-19 as shipping volumes decreased significantly from typical levels and negatively impacted the pricing environment. As such, our 2021 consolidated operating revenue increased $463.7 million during first three quarters of 2021 compared to the same period in 2020.
The Company’s results reflect these revenue increases offset by increased purchased transportation expenses and variable expenses including salaries, wages and benefits. Further material changes are provided below.
Salaries, wages and employee benefits. Salaries, wages and employee benefits increased $116.1 million primarily due to increased volumes and contractual wage rate increases. Additionally, in response to volume declines in the third quarter of 2020, the Company reduced variable expenses including labor through furloughs and reduced headcount.
Fuel, operating expenses and supplies. Fuel, operating expenses and supplies increased $90.5 million, primarily due to a $54.7 million increase in fuel expense, which was largely a result of higher fuel prices. Additional increases resulted from costs related to our rebranding initiative and certain variable costs, which during the first three quarters of 2020 were managed through cost reduction efforts, including facility maintenance, professional services, and other employee expenses.
Purchased transportation. Purchased transportation increased $171.3 million primarily due to significant rate increases and other factors noted above. These increases were noted in all our modes of purchased transportation and include a $61.5 million increase in over-the-road purchased transportation expense, a $46.6 million increase in rail purchased transportation expense, a $37.3 million increase in third-party costs due to the growth in customer-specific logistics solutions, and a $23.4 million increase from additional usage of local purchased transportation.
Other operating expenses. Other operating expenses increased $30.3 million primarily due to a $20.6 million increase in third-party liability claims expense primarily due to unfavorable development of prior year claims and an $8.5 million increase in cargo claims.
Gains on property disposals. Net losses on disposals of property were $1.5 million in 2021. Comparatively, net gains on disposals of property were $45.3 million in 2020, which was primarily the result of the sale of one real property.
Income tax. Our effective tax rate for the first three quarters of 2021 and 2020 was (1.9%) and 35.1%, respectively. The most significant items impacting the 2021 rate for the first three quarters were net state and foreign tax provisions. The most significant items impacting the 2020 rate were primarily a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation and, to a lesser extent, a benefit from the reversal of liability for an uncertain tax position resulting from statute expiration. Due to an accounting standard change that was effective for the Company on January 1, 2021 this exception to the rules regarding intraperiod tax allocation is not applicable to the 2021 rate. The Company had a full valuation allowance against our domestic net deferred tax assets as of the relevant reporting periods.
18
The table below summarizes the key revenue metrics for the first three quarters of 2021 compared to the first three quarters of 2020:
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|
|
|
|
|
|
|
|
|
|
First Three Quarters
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Percent
Change(a)
|
|
Workdays
|
|
|
191.0
|
|
|
|
192.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio
|
|
|
98.7
|
%
|
|
|
98.7
|
%
|
|
0.0 pp
|
|
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
|
$
|
3,446.4
|
|
|
$
|
3,055.5
|
|
|
|
12.8
|
%
|
LTL tonnage (in thousands)
|
|
|
7,312
|
|
|
|
7,412
|
|
|
|
(1.3
|
%)
|
LTL tonnage per workday (in thousands)
|
|
|
38.28
|
|
|
|
38.50
|
|
|
|
(0.6
|
%)
|
LTL shipments (in thousands)
|
|
|
12,824
|
|
|
|
12,806
|
|
|
|
0.1
|
%
|
LTL shipments per workday (in thousands)
|
|
|
67.14
|
|
|
|
66.52
|
|
|
|
0.9
|
%
|
LTL picked up revenue per hundred weight
|
|
$
|
23.57
|
|
|
$
|
20.61
|
|
|
|
14.3
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
|
$
|
20.67
|
|
|
$
|
18.55
|
|
|
|
11.4
|
%
|
LTL picked up revenue per shipment
|
|
$
|
269
|
|
|
$
|
239
|
|
|
|
12.6
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
|
$
|
236
|
|
|
$
|
215
|
|
|
|
9.7
|
%
|
LTL weight per shipment (in pounds)
|
|
|
1,140
|
|
|
|
1,158
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|
|
|
(1.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)(b)
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|
$
|
3,787.1
|
|
|
$
|
3,338.9
|
|
|
|
13.4
|
%
|
Total tonnage (in thousands)
|
|
|
9,529
|
|
|
|
9,454
|
|
|
|
0.8
|
%
|
Total tonnage per workday (in thousands)
|
|
|
49.89
|
|
|
|
49.11
|
|
|
|
1.6
|
%
|
Total shipments (in thousands)
|
|
|
13,188
|
|
|
|
13,158
|
|
|
|
0.2
|
%
|
Total shipments per workday (in thousands)
|
|
|
69.05
|
|
|
|
68.35
|
|
|
|
1.0
|
%
|
Total picked up revenue per hundred weight
|
|
$
|
19.87
|
|
|
$
|
17.66
|
|
|
|
12.5
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
|
$
|
17.50
|
|
|
$
|
15.95
|
|
|
|
9.7
|
%
|
Total picked up revenue per shipment
|
|
$
|
287
|
|
|
$
|
254
|
|
|
|
13.2
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
|
$
|
253
|
|
|
$
|
229
|
|
|
|
10.3
|
%
|
Total weight per shipment (in pounds)
|
|
|
1,445
|
|
|
|
1,437
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
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|
(in millions)
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|
2021
|
|
|
2020
|
|
(b) Reconciliation of operating revenue to total picked up revenue:
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|
|
|
|
|
|
Operating revenue
|
|
$
|
3,812.9
|
|
|
$
|
3,349.2
|
|
Change in revenue deferral and other
|
|
|
(25.8
|
)
|
|
|
(10.3
|
)
|
Total picked up revenue
|
|
$
|
3,787.1
|
|
|
$
|
3,338.9
|
|
(a)
Percent change based on unrounded figures and not the rounded figures presented.
(b)
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact of other revenue.
19
Certain Non-GAAP Financial Measures
As previously discussed in the “Our Business” section, we use certain non-GAAP financial measures to assess performance including EBITDA and Adjusted EBITDA. We believe our presentation of EBITDA and Adjusted EBITDA is useful to investors and other users as these measures represent key supplemental information our management uses to compare and evaluate our core underlying business results, particularly in light of our leverage position and the capital-intensive nature of our business. These secondary measures should be considered in addition to the results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, our GAAP financial measures.
Adjusted EBITDA
The reconciliation of net loss to EBITDA and EBITDA to Adjusted EBITDA (defined in our TL Agreements as “Consolidated EBITDA”) for the third quarter of 2021 and 2020, first three quarters of 2021 and 2020, and the trailing twelve months ended September 30, 2021 and 2020, is as follows:
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|
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|
|
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|
|
|
|
|
|
Third Quarter
|
|
|
First Three Quarters
|
|
|
Trailing-Twelve-Months Ended
|
|
(in millions)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
Reconciliation of net income (loss) to Adjusted EBITDA:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8.3
|
|
|
$
|
(2.0
|
)
|
|
$
|
(64.4
|
)
|
|
$
|
(34.8
|
)
|
|
$
|
(83.1
|
)
|
|
$
|
(50.1
|
)
|
Interest expense, net
|
|
|
38.5
|
|
|
|
33.4
|
|
|
|
111.9
|
|
|
|
101.8
|
|
|
|
145.7
|
|
|
|
129.7
|
|
Income tax expense (benefit)
|
|
|
—
|
|
|
|
(10.9
|
)
|
|
|
1.2
|
|
|
|
(18.8
|
)
|
|
|
0.4
|
|
|
|
(22.0
|
)
|
Depreciation and amortization
|
|
|
37.8
|
|
|
|
32.5
|
|
|
|
106.1
|
|
|
|
102.4
|
|
|
|
138.6
|
|
|
|
139.1
|
|
EBITDA
|
|
|
84.6
|
|
|
|
53.0
|
|
|
|
154.8
|
|
|
|
150.6
|
|
|
|
201.6
|
|
|
|
196.7
|
|
Adjustments for TL Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on property disposals, net
|
|
|
0.2
|
|
|
|
—
|
|
|
|
1.5
|
|
|
|
(45.3
|
)
|
|
|
1.5
|
|
|
|
(55.4
|
)
|
Non-cash reserve changes(a)
|
|
|
(2.7
|
)
|
|
|
—
|
|
|
|
0.2
|
|
|
|
3.0
|
|
|
|
0.1
|
|
|
|
5.1
|
|
Letter of credit expense
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
6.3
|
|
|
|
5.2
|
|
|
|
8.4
|
|
|
|
6.9
|
|
Permitted dispositions and other
|
|
|
—
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Equity-based compensation expense
|
|
|
0.8
|
|
|
|
1.1
|
|
|
|
3.5
|
|
|
|
4.3
|
|
|
|
3.9
|
|
|
|
5.4
|
|
Non-union pension settlement charge
|
|
|
3.1
|
|
|
|
1.9
|
|
|
|
3.4
|
|
|
|
1.9
|
|
|
|
5.1
|
|
|
|
2.0
|
|
Other, net
|
|
|
0.8
|
|
|
|
1.0
|
|
|
|
2.7
|
|
|
|
1.5
|
|
|
|
4.7
|
|
|
|
2.1
|
|
Expense amounts subject to 10% threshold(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COVID-19
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.9
|
|
|
|
—
|
|
|
|
3.9
|
|
Other, net
|
|
|
6.7
|
|
|
|
3.1
|
|
|
|
19.6
|
|
|
|
8.8
|
|
|
|
28.1
|
|
|
|
12.9
|
|
Adjusted EBITDA prior to 10% threshold
|
|
|
95.6
|
|
|
|
62.4
|
|
|
|
192.8
|
|
|
|
134.4
|
|
|
|
254.0
|
|
|
|
180.2
|
|
Adjustments pursuant to TTM calculation(b)
|
|
|
(1.2
|
)
|
|
|
(0.4
|
)
|
|
|
(2.3
|
)
|
|
|
(0.4
|
)
|
|
|
(5.6
|
)
|
|
|
(0.4
|
)
|
Adjusted EBITDA
|
|
$
|
94.4
|
|
|
$
|
62.0
|
|
|
$
|
190.5
|
|
|
$
|
134.0
|
|
|
$
|
248.4
|
|
|
$
|
179.8
|
|
(a)
Non-cash reserve changes reflect the net non-cash reserve charge for union and nonunion vacation, with such non-cash reserve adjustment to be reduced by cash charges in a future period when paid.
(b)
Pursuant to the TL Agreements, Adjusted EBITDA limits certain adjustments in aggregate to 10% of the trailing-twelve-month ("TTM") Adjusted EBITDA, prior to the inclusion of amounts subject to the 10% threshold, for each period ending. Such adjustments include, but are not limited to, restructuring charges, integration costs, severance, and non-recurring charges. The limitation calculation is updated quarterly based on TTM Adjusted EBITDA, and any necessary adjustment resulting from this limitation, if applicable, will be presented here. The sum of the quarters may not necessarily equal TTM Adjusted EBITDA due to the expiration of adjustments from prior periods.
20
Financial Condition, Liquidity and Capital Resources
The following sections provide aggregated information regarding our financial condition, liquidity and capital resources. As of September 30, 2021 and December 31, 2020, our total debt was $1,548.4 million and $1,225.4 million, respectively.
Liquidity
Our principal sources of liquidity are cash and cash equivalents, any prospective net cash flow from operations and available borrowings under our ABL Facility. As of September 30, 2021, our cash and cash equivalents, exclusive of restricted amounts held in escrow, was $358.1 million.
As of September 30, 2021, our maximum availability under our ABL Facility was $96.1 million, and our Managed Accessibility (as defined below) was $51.1 million. Maximum availability is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our $353.9 million of outstanding letters of credit. Our “Managed Accessibility” represents the maximum amount we would access on the ABL Facility and is adjusted for eligible receivables plus eligible borrowing base cash measured for the applicable period. If eligible receivables fall below the threshold management uses to measure availability, which is 10% of the borrowing line, the credit agreement governing the ABL Facility permits adjustments from eligible borrowing base cash to restricted cash prior to the compliance measurement date of October 15, 2021. As of September 30, 2021, our cash and cash equivalents and Managed Accessibility was $409.2 million.
For the December 31, 2020 borrowing base certificate, which was filed in January of 2021, we transferred $3.1 million of cash into restricted cash to maintain the 10% threshold, as permitted under the ABL Facility, which transfer effectively put our cash and cash equivalents and Managed Accessibility to $440.2 million as of that date.
Outside of funding normal operations, our principal uses of cash include principal and interest payments on our funded debt, payments on equipment leases and investments in capital expenditures.
We have no off-balance sheet arrangements except for other contractual obligations for service agreements and capital purchases, letters of credit and surety bonds, which were disclosed in the 2020 Form 10-K. Additionally, there have been no material changes to these arrangements subsequent to December 31, 2020.
Covenants
Beginning at December 31, 2021, the Company has a quarterly requirement to maintain a trailing-twelve-month ("TTM") Adjusted EBITDA of $100.0 million. This requirement increases beginning March 31, 2022 to a TTM Adjusted EBITDA of $150.0 million and increases at June 30, 2022, and thereafter, to a TTM Adjusted EBITDA of $200.0 million. Management expects, based on actual and forecasted operating results, the Company will meet this covenant requirement for the period it becomes effective and the next twelve months.
Cash Flows
For the first three quarters of 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
First Three Quarters
|
|
(in millions)
|
|
2021
|
|
|
2020
|
|
Net cash provided by (used in) operating activities
|
|
$
|
9.3
|
|
|
$
|
108.5
|
|
Net cash provided by (used in) investing activities
|
|
|
(441.8
|
)
|
|
|
13.9
|
|
Net cash provided by (used in) financing activities
|
|
|
322.7
|
|
|
|
206.9
|
|
Operating Cash Flow
Cash provided by operating activities was $9.3 million during the first three quarters of 2021, compared to $108.5 million provided during the first three quarters of 2020. The decrease in cash provided was primarily attributable to $58.8 million in changes to accounts receivables due to positive yield growth, as discussed in our Consolidated Results of Operations, and the timing of collections. Additionally, operating cash flows decreased due to a $29.6 million decrease in net loss.
Investing Cash Flow
Cash used in investing activities was $441.8 million during the first three quarters of 2021 compared to $13.9 million of cash provided during the first three quarters of 2020. The decrease of $455.7 million in cash was largely driven by an increase in cash
21
outflows on revenue equipment acquisitions and by lower cash proceeds from the sale of real property. Cash used by investing cash flows for the last quarter of 2021 are anticipated to decline from recent levels based upon planned capital expenditures.
Financing Cash Flow
Cash provided by financing activities for the first three quarters of 2021 was $322.7 million compared to $206.9 million provided during the first three quarters of 2020. The increase in cash is primarily related to amounts drawn during the first three quarters of 2021 and 2020 on our UST Credit Agreements.
Capital Expenditures
Our capital expenditures for the first three quarters of 2021 and 2020 were $442.9 million and $41.4 million, respectively. These amounts were principally used to fund the purchase of new and used revenue equipment, to improve our technology infrastructure and to refurbish engines for our revenue equipment fleet. At September 30, 2021, the Company has fully utilized amounts drawn on the UST Loan Tranche B. The Company begins depreciation on revenue equipment upon placement into active service. Our activity related to new operating lease commitments for revenue equipment was nominal during the first three quarters of 2021 due to the aforementioned purchases. The Company expects total capital expenditures during 2021 to be between $480.0 million and $530.0 million.
Contractual Obligations and Other Commercial Commitments
Contractual Cash Obligations
The Company has completed a review of our material cash requirements to analyze and disclose material changes, if any, in those requirements between those expected cash outflows as of December 31, 2020, as detailed in the Form 2020 10-K, and those as of September 30, 2021.
Our material updates to cash outflows that we are contractually obligated to make now include future principal and interest payments resulting from the additional UST Loan Tranche B borrowings, as disclosed in Note 3. Those specific borrowings were required to be used to fund the purchase of tractors and trailers and such purchases were completed during the quarter ended September 30, 2021.
In addition, as of September 30, 2021 we are contractually obligated to make other capital expenditures of approximately $38.8 million, primarily for revenue equipment and information technology equipment obligations.
The following table summarizes our contractual cash obligations for operating leases as of September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
(in millions)
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
After
5 years
|
|
Operating leases(a)
|
|
$
|
271.5
|
|
|
$
|
105.8
|
|
|
$
|
97.6
|
|
|
$
|
27.2
|
|
|
$
|
40.9
|
|
(a)
Operating leases represent future payments under contractual lease arrangements primarily for revenue equipment, and includes obligations prior to lease commencement for property leases when applicable.
For all other changes in our cash requirements, for cash outflows that we are contractually obligated to make, they were considered by the Company and those changes are reasonably expected based upon our prior financial statement disclosures or in the ordinary course of business.
Other Commercial Commitments
The Company has completed a review of our other commercial commitments in order to analyze and disclose material changes, if any, in those commitments between those as of December 31, 2020, as detailed in the 2020 Form 10-K, and those as of September 30, 2021. As a result, the Company determined that there were no material changes to disclose.
22