According to a recent message to investors from Stephens, a financial services company, Yellow is facing a concerning situation with its cash reserves. The company’s liquidity disclosure on July 10 indicated that during the second quarter of 2023, Yellow was spending $4 million in cash each week. At the end of June, they had approximately $100 million in cash.

Stephens’ research analysts, Jack Atkins and Grant Smith, who focus on the freight and logistics sectors, mentioned in their note that Yellow’s cash flow has been severely impacted due to customers diverting freight. Although Yellow may not have been able to quickly adjust its expenses to match the changing situation, they still incurred about $70 million in cash expenses last week, while their revenue fell around 35% short of the planned amount.

Stephens’ estimation suggests that Yellow likely burned through $20 million to $25 million in cash during the previous week. However, with ongoing freight diversions, the situation has worsened, and now the company is estimated to be burning $9 million to $10 million per day. Stephens believes that Yellow’s daily revenue has plummeted by 70% compared to Q2 levels, while daily expenses remain at a similar level, excluding noncash expenses and deferred health and welfare payments.

Given these developments, Yellow is getting dangerously close to a crucial requirement imposed by its lenders. The requirement states that the company must maintain at least $35 million in liquid cash reserves.

“Putting it all together, if Yellow had roughly $100 mil. in cash at the end of June, burned $4 mil.-$5 mil. a week during the first two weeks of July, burned an additional $20 mil.-$25 mil. last week and is now burning $9 mil.-$10 mil. per day, it is reasonable to believe that the Company could breach its $35 mil. liquidity requirement at any moment,” the Stephens note read.

Yellow did not immediately return a request for comment. 

Other financial analysts from different banks, such as Deutsche Bank, share a similar sentiment and have also issued notes to investors suggesting that Yellow’s downfall is unavoidable. According to a note from Stifel on Monday, the only potential path for Yellow to avoid bankruptcy would be through a substantial infusion of equity, indicating a significant injection of capital into the company’s operations.

 

Source: www.freightwaves.com