Yellow Plummets Over 50% After Bankruptcy Threat
Yellow (NASDAQ: YELL) has been in discussions with the International Brotherhood of Teamsters (IBT) regarding its current financial situation. Amidst ongoing negotiations, the company’s senior vice president of sales recently addressed her team, leading to speculation about the future of the company.
According to reliable sources within the company, the senior vice president informed her sales staff on Wednesday that their last day of work would be Friday. She also mentioned the possibility of filing for bankruptcy on Monday. This news came as a shock to the approximately 30,000 employees, including around 22,000 Teamsters members, who work for Yellow.
Following the news, the company’s stock fell as much as 51% on the day.
The company reported an operating revenue of $5.245 billion in 2022, making it the third-largest LTL company in the industry. Despite this, Yellow has been facing financial challenges, prompting the need for negotiations with the IBT.
In a later meeting on Wednesday, the senior vice president clarified her previous statement about bankruptcy. She instructed the sales team to inform customers that discussions with the IBT are still underway and that the company is responsibly preparing for various potential outcomes.
The official statement reads: “Yellow’s talks with the IBT are ongoing. As previously stated, and in keeping with fiduciary responsibility of the company’s executives, the company continues to prepare for a range of contingencies.”
Additionally, the vice president of technology services also addressed her team, reiterating the same statement on Wednesday afternoon. Before this, employees were advised to be prepared for any potential developments and to explore other job opportunities.
Burning $10 million per day?
According to a recent investor note from Stephens, a financial services firm, authored by research analyst Jack Atkins and associate Grant Smith, the company finds itself in a dire situation regarding its cash position.
In the second quarter of 2023, based on a July 10 liquidity disclosure, Stephens estimated that Yellow’s cash burn rate was a staggering $4 million per week. With only approximately $100 million in cash by the end of June, the company’s financial situation was already precarious.
As customers diverted freight, Yellow’s cash flow became severely restricted, impacting the company’s ability to adjust its expense structure quickly. As a result, it continued to incur approximately $70 million in cash expenses in the previous week, while its revenue fell about 35% below its planned target.
Stephens predicts that Yellow’s cash burn rate may have reached $20 million to $25 million in the most recent week. Unfortunately, the situation has worsened further due to additional freight diversions, leading to an estimated daily cash burn rate of $9 million to $10 million. Revenue per day has plummeted by 70% compared to Q2 levels, and expenses per day remain at similar levels, excluding noncash costs and deferred health and welfare payments.
The alarming financial circumstances put Yellow at risk of violating a critical requirement set by its lenders, which mandates that the company maintain at least $35 million in liquid cash reserves.
The note also highlighted the concerns expressed by analysts from other banks, like Deutsche Bank, who believe that Yellow’s fate is inevitable and that it may need a substantial equity injection to survive without declaring bankruptcy.
Meanwhile, reports from employees nationwide indicate that operations are grinding to a halt. Terminals and regions are halting pickups, and employees have received memos informing them of the limitations on pickups. Many employees feel that the company is winding down, and the atmosphere is filled with a sense of farewell and sadness.
Information for this briefing was found via Freight Waves and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
