Yellow Corp (YELL) 2014 Q4 法說會逐字稿

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the YRCW fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions). I will now turn the call over to Stephanie Fisher, Vice President and Controller.

Thank you. Good afternoon, and thank you for joining us for the YRC Worldwide fourth quarter 2014 earnings call. James Welch, Chief Executive Officer of YRC Worldwide, Jamie Pierson, CFO of YRC Worldwide, and Darren Hawkins, President of YRC Freight will provide comments this afternoon. James, Jamie and Darren will be available to answer questions following our comments.

Now for our disclaimers. 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 made be might 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 afternoon's earnings release and our most recent SEC filings including our forms 10K and 10-Q. Additionally, please see today's release for a reconciliation of operating income and loss to adjusted EBITDA and the reconciliation of adjusted EBITDA to net cash flow from operating activities and adjusted free cash flow deficits. During this call we may refer to the non-GAAP measure of adjusted EBITDA simply as EBITDA.

I'll now turn the call over to James to provide comments on our fourth quarter results.

Thanks, Stephanie. We appreciate you taking the time to listen to our fourth quarter and year end earnings call this afternoon. I'll make a few comments and then turn the call over to Jamie and Darren for their additional comments. 2014 was literally a tale of two halves. At this time last year we were battling terrible winter weather while working diligently to refinance our debt and extend our labor agreement for another five years and fortunately we were successful on all accounts. Immediately thereafter, we worked on getting our networks back in cycle after coming off of a harsh winter.

Then we regained our operating momentum and we moved through the second quarter and into the third quarter. And we carried that momentum through the fourth quarter and delivered positive year-over-year results when compared to the fourth quarter of 2013. You might recall that during the third quarter earnings call, we clearly noted that our No. 1 priority at each of the four operating companies was to improve overall pricing and yield. We executed on that priority well and improved yield and freight mix.

Our sales force did an excellent job of positioning capacity and value that we bring to the marketplace. For the full year of 2014, we improved operating income by 60% to $45.5 million over 2013 mostly due to yield and volume growth at both segments. At YRC we generated approximately 65% of our adjusted EBITDA for the entire year of 2014 and the second half of the year. A true sign of operational progress. In the fourth quarter, YRCW improved operating income by $32.8 million, generating $31.2 million of operating income versus an operating loss of $1.6 million in the fourth quarter of 2013.

YRC Freight experienced yield growth of 5.7% including fuel surcharge and 7.3% excluding fuel surcharge. These yield improvements obviously helped driving operating income improvement. YRC Freight's priority was to improve price over volume and will continue to make this a priority throughout 2015 along with a continued focus on improving operational efficiencies. Darren will elaborate on YRC's Freight's progress later in the call. The regional carriers experienced field growth of 3.5% including fuel surcharge and 4.8% excluding fuel surcharge.

However, offsetting this positive yield growth was expense related to the increased frequency of liability and work comp plans which had a very negative impact on the overall fourth quarter results. For 2015, yield improvement, operational efficiency and safety will continue to be a priority at all three regional companies. So while our progress is notable, in the second half of the year, and particularly in the fourth quarter of 2014, we have areas of our business that still must improve.

First, we simply had too many injuries and accidents during the year and our operating performance suffered as a result. We have intensive and specific initiatives in place at each operating company that are focused on improving safety results. For example, we are increasing the frequency of the Smith system training for drivers. We have established safety committees at each of our terminals and we're consistently conducting safety audits and safety training.

Additional communication with employees is also taking place at pre shelf meetings and at the time of driver dispatches as well. Second, improving productivity in 2015 will be important to further improving our operating results. We hired and trained approximately 4,000 employees during 2014 and are providing more advanced training and support for current employees. We believe investing in our employees is key to ensuring they have the tools they need drive the improvement we expect.

Third, as I mentioned earlier, our focus on yield which began producing positive results in the third quarter of 2014, will continue in 2015. We are making investments in our yield management group to be certain that we're being compensated for the capacity, service and value we bring to the marketplace. As we move through 2015, we will monitor fuel prices just like every other company in the [inaudible] industry to see whether lower fuel prices translate into additional consumer spending and therefore increased freight volumes.

If fuel prices remain at current levels, lower surcharge revenue will likely put downward pressure on results. Of freight volumes increase due to additional consumer spending, we should continue to see capacity remain tight during the year and the pricing environment should continue to remain favorable. In summary, our Company has continued to improve our competitive position in the marketplace. Our regional carriers, Holland, Reddaway, and New Penn provide best in class service in the markets they've been successfully serving. And despite a setback in the fourth quarter due to additional liability claims and work comp expense, these carriers are in good shape for success in 2015 and they are led by extremely capable management teams.

As for YRC freight, they were able to gain and then sustain solid momentum in the second half of 2014 and address their freight mix and pricing issues in a meaningful way really for the first time in many years. YRC freight is working on several key initiatives that should make them more operationally efficient moving forward and they, too, have a solid management team committed to achieving better results.

In closing, I can say that our accomplishments in 2014 should provide a solid foundation to build on in 2015 and beyond. I'll now turn the call over to Jamie to review the stats for the quarter and year end results. Jamie?

Thanks, James. Good afternoon, everyone. For the fourth quarter of 2014, even though the regional segment had four fewer working days, we reported revenue of $1.2 billion, an increase of $10 million or 4Q 2014, largely due to top line growth at YRC Freight due to strong yield growth for the quarter, offset by slight decline in volume and tonnage.

Additionally, we reported consolidated operating income of $31.2 million, a $32.8 million increase when compared to the slight loss we reported in 4Q 2013 and reported adjusted EBITDA of $77 million, an $18.2 million increase over the same quarter last year. In the fourth quarter of 2014, operating income included $5.8 million gain on asset disposals compared to a $300,000 gain on asset disposals in the same period of 2013. For the year ended December 31, 2014, we reported revenue of $5.1 billion, an increase of $203 million over 2013 due to top line growth at both YRC Freight and the regional carriers.

The revenue growth at YRC Freight was largely due to strong yield growth experienced in the second half of year as our pricing strategies gained traction. The increases in revenue for the regional carriers was due to tonnage and pricing increases throughout the entire year. Additionally, we reported consolidated operating income of $45.5 million, a $17.1 million increase when compared to 2013, and adjusted EBITDA of $244.5 million, a slight decrease from the $254.9 million we reported in 2013. Operating income in 2014 included a $11.9 million gain on asset disposals compared to a $2.2 million gain on asset disposals in 2013.

For the year-over-year fourth quarter stats, YRC's Freight tonnage's per day was down 2.7% and regional tonnage per day was up 1%. YRC's revenue per shipment including fuel charge was up by 5.8% and revenue per 100 weight including fuel surcharge was up 5.7% and its weight per shipment was flat. As James previously mentioned, excluding fuel surcharge, revenue per shipment was up 7.4% and revenue per 100 weight was up 7.3%.

The regional carriers revenue per shipment including fuel surcharge increased 3.7% which included an increase in their weight per shipment of .2%, and an increase in the revenue per 100 weight including fuel surcharge of 3.5%. Additionally, as previously noted, excluding fuel surcharge, their revenue per shipment was up 5%, and their revenue per 100 wait was up by 4.8%. As for the results for the fourth quarter of 2014, YRC Freight reported operating income of $24.5 million, nearly a $40 million improvement over the prior year which translates into an operating ratio of 96.9 and improvement of 510 bases points over last year's comparable quarter.

Further, freight reported adjusted EBITDA of $44 million, a $26.6 million increase over the fourth quarter of 2013 primarily due to increases in base pricing and reduced local terminal purchase transportation offset by lower productivities. Our regional segment reported operating income of $10.6 million. A decrease of $12.1 million from 4Q 2013, and an operating ratio of 97.5. This decrease was largely due to four fewer working days and an additional $12.2 million of expense related to liability claims and work comp expense related to the increased frequency of claims.

On adjusted EBITDA basis, the segment reported $33.2 million which was a decrease of $7.5 million over 4Q 2013. In terms of liquidity, at the end of the fourth quarter of 2014, our cash, cash equivalent amounts able to be drawn under our ABL facility remained relatively consistent at $198 million. Down from $213 million at the end of the third quarter. In closing, I would say a few things. One, as we reported earlier today, we received a waiver from our ABL lenders to address the results of an incorrect interpretation of the data in which we needed to deposit cash into the facility to meet some of our technical borrowing requirements.

The waiver was effective yesterday and we continue at business as usual under our credit facilities. Two, we have been discussing for some time that the reinvestment in our fleet in 2014 was in the form of operating leases. This will continue to be the case in 2015 as well. All else being equal and on a year-to-year basis, these leases will pressure consolidated EBITDA margin by approximately 1%. In 2014, we purchased $69.2 million of total CapEx and lease revenue equipment with a capital value of another $72.4 million for a total CapEx equivalent of $141.6 million.

Third, and finally, the investments we have made in 2014 and investments we're making today and plan to make throughout 2015 in dimensioners, doc tablets, safety and line health technology should continue to pay significant dividends going forward. At this point, I'll turn the call over to Darren to discuss YRC's Freight results and their priorities for the balance of the year.

Thanks, Jamie and good afternoon, everyone. I'm pleased to report continued an accelerating process at YRC Freight during the fourth quarter as our investments in people, pricing disciplines and operational processes contributed to improved results. Our sales efforts produced steady and consistent revenue growth in the fourth quarter and we expect those efforts to continue as we improve our business mix, pursue volume in the right lanes and grow profitable revenue in 2015.

The performance improvement at YRC freight, was driven by strong yield results and successful contract renewals which more than offset declining fuel surcharge revenues experienced late in the quarter. As a result of the decrease in diesel prices in the fourth quarter that we anticipate will continue into and throughout the year, YRC Freight will continue to pursue base rate increases. Going forward, we will continue to place yield improvements above tonnage growth.

Operationally, our net worth remained in cycle and current during the fourth quarter while handling business peaks and holiday periods efficiently. Our efforts to recruit, hire and train drivers have been successful, are ongoing and resulted in a reduction of local terminal purchase transportation costs which significantly contributed to positive earnings in the fourth quarter. In support of the yield and operational improvement strategy, we continued investing in technology as we completed the roll out of 42 dimensioning devices across our network and finalized the testing of doc tablets at our two largest distribution centers in Q4.

The successful pilot for this new technology led to the implementation plan to provide tablets for all supervisory staff at our 23 distribution centers by the end of the third quarter. The wireless doc tablets should improve supervisor time efficiency as well as improving doc bills per hour, load average and quality. Additionally, we started updating and enhancing the capability of our line haul management technology to provide greater visibility, prioritization and oversight of driver, power and trailer assets in the fourth quarter of 2014 and we'll have the install completed by the end of the second quarter of 2015.

We remain committed to the four foundational priorities of safety, service, efficiency and every one sells, that are the road map for continuous improvement at YRC Freight in 2015. Initiatives in each of these four foundational priorities include from safety, additional field safety trainers that are made up of our most experienced and safe drivers and the deployment of in cab technology started in our line haul fleet that includes adaptive cruise control, stability control and lane departure warning.

For service, driver recruiting, hiring and training through military partnership, doc to drive program and centralized driver recruiting department. From an efficiency perspective, we have begun an initiative that includes all of our focus areas through direct engagement of our hourly employees who are closest to the operational performance of the Company. It involves over 100 experienced system managers who are working closely with terminal employees and a consulting firm in our distribution centers.

These processes improvement teams are streamlining standard work that will eliminate waste in all facets of the office, doc and yard operations. And everyone sells. The right price, the right lanes through clear customer communication and pricing technology that drives network beneficial tonnage and yield enhancement. These focus areas will improve our value proposition and make YRC freight more attractive to the overall marketplace. The gains we expect in these areas will support our growth initiatives around revenue quality while lowering operating costs and driving improvement in our financial results during 2015. While the timing and complexity of these initiatives vary, we expect steady progress throughout the year in all areas.

YRC Freight will continue to provide safe and reliable transportation solutions that make a different for our people, our customers and our communities. We believe our team is well-positioned to continue into 2015 the progress we made in the fourth quarter. With these comments, we're ready to take your questions.

(Operator Instructions). The first question is from Thom Albrecht with BB&T.

Hey, guys.

Hey, Thom, how are you doing?

I'm good. Traveling, but good to see a positive bottom line number. I just wanted to rattle off a bunch of kind of questions to bring everything together. On the larger gains at Freight, was that mostly real estate or are you actually able to realize gains on equipment despite the old age?

The vast majority of it is real estate. There's nothing there that is, outside of the norm. Very little on the equipment, if any.

Okay. And then I know part of the O.R. slippage at regional was the number of days was quite a bit fewer, but it does seem like that even before the fourth quarter, that the improvement had stalled out there. Can you discuss two things. Why you believe it stalled out and, is it more centered in Holland than the other two companies?

This is James. Obviouslywe won't commit to talk too much about each individual company but I'll say what hurt the regionals in the fourth quarter more than anything was the $12.2 million hit that they took with liability claims on work comp expense. It you really add that back in if we hadn't had some of the severity of the accidents we have had, they wouldn't have been that far off last quarter. They're very focused on their yield improvement. As they got better with their yield. I think we're set up good for 2015 and I'm not too worried about them right now.

Are you comfortable with the leadership in place?

I am very comfortable with the leadership in place at all three of those companies. We have extremely [inaudible] management teams and they're doing all the things that we want them to do right now.

And how much of a BIPD and workers comp adjustment was there at freight in the quarter?Was that a benefit or a bit of a small expense?

I'll let Jamie talk about that.

We don't give the detail in terms of breaking it up between the two, especially on a detailed segment basis. What I would say, though, Thom is I think James said it in his prepared remarks is we had way too many accidents and we're going to focus just on YRC Freight and just on the quarter, very, very little if anything on a BIPD basis.

Okay. So a minute ago I think James gave a $12.2 million figure. I thought that was just a regional reference.

It is just a regional reference, Thom.

And that was just a quarter, right?That wasn't a whole year, right?

That was just for the quarter.

And was that a mix of BIPD and workers comp?

Yes.

Okay. So you gave it regional but you won't give it at Freight?

The break-up of it Thom is it's $10 million of BIPD and $2 million of work comp at the regionals.

But for YRC Freight on a year-over-year basis, it's a non-event.

Okay. That's kind of what I'm looking for is a delta. A slight positive or negative or neutral. All right. And then, Jamie, when you were talking about the leases and as you continue to invest in the fleet, I want to make sure I heard you correctly. I think you said that the growth in operating leases going forward could hurt the O.R. basically by one point or 100 basis points. I assume you mean that in a static sense before other efficiencies, pricing, improvements. You're just kind of talking static, right?

That's right. And it's not operating income, it's EBITDA. But all that's being equal on a year-over-year basis, it's going to be a one point headwind.

Okay. And then on those figures that you gave for CapEx, was it $69.2 million of operating leases and $72.4 million of capital leases?

Give me one second. I think it's $69 million of CapEx and about $72 million of capital leases.

No, operating leases. Capital value.

I'm sorry. Operating leases. So $69.2 million CapEx. $72.4 million operating leases for a total of $141.6 million.

Okay. So cash CapEx on the first one. Okay. And then lastly and then I'll jump in the queue. You've come a long way. Would you want to venture any thoughts on whether you can continue the profitability in the first quarter if weather remains somewhat muted?

Tom, this is James. I'll just reiterate that yield is going to continue to be our focus. We've got good momentum. It's continued into January on the yield side. Certainly we are all about improving our safety performance. We know we have to do better there because that did hurt our operating performances especially at the regional companies. We know we've got to engage our employees to improve our productivities and we're going to keep picking away at the technology piece to do things that we want to do in terms of efficiency and productivity and cost control standpoint. That's about as good a guidance I'm going to give you for January and February and March.

That's helpful. I'll jump back in the queue. Thank you.

The next question is from rob salmon with Deutsche bank.

Hi, good afternoon, guys.

Hi, Rob.

James, if you could talk a little bit at the morale at the regional companies. It feels like, at least in the fourth quarter, that they took their eye off the ball given the elevated accident severity as well as workers comp in the quarter and how you guys are looking to drive better engagement to achieve some of the productivity targets you guys have outlined in the past?

Rob, that's a good question and a good observation. It kind of goes back to where we were this time last year fighting our way through that winter weather and the MOU and uncertainty and the refinancing and all the things that we were doing. There's no doubt that we lost a little pep in our step from an employee engagement standpoint and we all pretty much got smothered with volume in that second quarter. So it's just been a continual process of trying to be sure that we're communicating and engaging our employees to do the right thing for our customers and our Company and themselves and we kind of got on a little bit of a bad streak with some injuries and several severe accidents.

I don't think that there is a lack of employees trying to do the right thing. I think it's just been a little tougher timeline to get things back to where we wanted it for the reasons that I just outlined in the first half of the year. That kind of gets back to my comments that literally 2014 was a year of two halves but all three of the regional companies are working diligently at employee engagement as YRC Freight. I don't think we have a morale problem per se but it's just been a little more difficult to get the pace that we wanted from that MOU timeframe last year.

Okay. That color is helpful. You guys had highlighted I guess the benefits from some tablets that you've been using at a couple DCs. Can you give us a sense of how that's impacted yield at those facilities as well as your line haul average or doc productivity so we can potentially extrapolate kind of what the impact will be as you deploy this across the overall network?

Good afternoon, Rob. This is Darren. As I mentioned, that pilot completed in the fourth quarter. We're implementing those at the distribution centers between now and the third quarter of this year. The initial pilot certainly showed success in each of those categories so we believe moving forward that they're going to have a positive effect in all of the categories that I mentioned. So that will be an ongoing process over the next two quarters.

But in terms of magnitude on the yield side, did they add a point at those facilities as you're kind of looking at the overall profit impact?Or is there any color you can provide me in terms of shipments or employees per shipment at those facilities or line haul load average, something so we can try and gauge the impact as we look out?

Well, we have an ongoing effort around yield as was referenced by our fourth quarter results and our technology investments always enhance operational performance. That's where we put our time and attention. So from the dimensioners, the doc tablets, our safety initiatives and our line haul technology, all of those technology investments will be a positive momentum for YRC Freight.

Darren, this is Jamie. Isn't it fair to say it's not going to be as much on yield as it been on load average, on doc productivity and it's going to be on claims. It's going to be getting the supervisors out of their offices and on the doc that helps drive those improvements operationally.

Absolutely and has a positive impact on employee engagement.

All right. Appreciate it. I'll hop back in the queue here.

Thanks, Rob.

The next question is from Scott Group with Wolfe Research.

Hey, thanks, good afternoon, guys.

Hi, Scott, how much you doing?

Good. I wonder if you can help us try and understand the impact of fuel a little bit. Maybe Jamie if you have some perspective on how much it may have helped if it did in the fourth quarter on a net basis and then I know you talked about that it could be a headwind in 2015. Is there any way to help us kind of figure out the magnitude of what the headwind could be and I'm guessing it's less now with the change in the surcharge? I think there's just a lot of questions about how big of an issue it could be.

Yes, Scott, we've look at prices as more holistically than individually. We don't break it out so much in terms of yield and fuel surcharge. We look at the value we bring our customers and we want to be compensated for that at the right levels. So if anything, as fuel comes down, I think that's going to let us lean into the base rate increases a little bit more to the extent, and you read the same trade rags as I do, to the extent that it adds another $65 billion in the consumer's pocket and there's a possibility we actually could see some capacity continued to be constrained which I think James even said it in his prepared remarks may even help the base rate environment as well.

Okay. And do you have a number on what the lag benefit was in the fourth quarter?

No. We reset it on a weekly basis. We don't look at it in terms of either giving guidance or the way we manage the business. We are much, much more long-term investors than that.

In terms of the cash and CapEx, the $142 million total last year, any guidance for this year in terms of what you're planning to spend?

No, no CapEx guidance but I would think that we're going to continue to do what we did last year. We're going to continue to actually what I would almost say double down on our technology investments. We're going to get the new safety in-cab technologies. I think Darren kind of went through what that's going to do for us and we're just going to continue at this pace. We know we have to catch up, Scott, and we're on a march to do so.

Last question, Jamie, what's the plan in terms of working capital and starting to have that go in the right direction again?

Do you think that could be a source of cash in 2015?

I think we do a very good job of managing our balance sheet. Certainly better today than we did three years ago. I haven't looked at it probably in the last three or four weeks but, our DSO is probably second best in the entire industry. Considering we're probably one of the most levered companies in the space, I think it's about as good as it's going to get. In terms of opportunities to clip coupons off the balance sheet, I see our ability to improve our safety, [inaudible] and free up some liquidity via the ABLs are probably a more practical route to get some cash off of the balance sheet.

Okay. Thank you, guys.

Thanks, Scott.

The next question is from Art Hatfield, with Raymond James.

Most of my questions have been answered but I was curious if you could give us a breakdown of the working days by quarter for freight and regional?

For 2014 or 2015?

2015.

I don't have that right now but I can give that to you off-line.

We can follow up on that. Other than that, I'm good for today. Thank you.

Okay.

The next question is from David Ross with Stifel.

Yes, good afternoon, everyone.

Hey, David.

James or Darren can you talk about the change of ops that was recently announced and how that's going to impact the network and the cost structure and maybe the benefits, productivity and margins in 2015?

It's much ado about nothing. It's just a very small change. It looked big when it was sent out because of the number of locals that it impacted. But it's part of that new flexibility that we achieved to go and look at zip codes that really don't have much density that are worth driving a lot of miles up towards to either pick up or deliver freight. It's just a very small change, less than one quarter of 1% of the freight volume at the YRC Freight so it's really like nothing. It's just a very small amount of change. And there's no moves, there's no lay-offs, there's no nothing involved in it.

And as you look at the network now running in more in cycle as you say, are there opportunities this year to do another bigger change of network operations that would have a meaningful impact?

I'll make a couple comments, Dave and let Darren jump in. We're going to always try to tinker with the network whether it's changing load patterns or freight flows or trying to maximize our density here and there. But there's nothing on the books that certainly I'm aware of that would be of large magnitude but we're going to rely on some of this new technology that we're developing from a line haul planning perspective to help us do a better job loading more directs and smoothing out our freight flows when we can and using different modes for the labor contract that we have, whether that's realm or over the world purchase transportation. Darren, do you want to jump in there with any thoughts?

Absolutely. Our line haul technology will allow us to create density and reduce miles without doing any changes to the network. We certainly continuously look at our network footprint and evaluate if there are any improvements we can make but I am happy with the way the network is running right now and with the volume that's in the network and we've got room to expand. So there's nothing in the short term on that subject.

And then when you look at the network, the line haul there, Darren, as you think about load factor versus service, the old idea of holding a longer haul shipment for density but it might have a negative impact on service. In this pricing environment where people are willing to pay more about might want service, is there a trade-off you have to make where you're going to run maybe a little bit less load factor sometimes to meet a better services standard to get a higher price?

Certainly. We have different levels of service that the customer can engage and that has a direct impact on how we put the loading cycle through. We do have our loading cycles planned to create that density so that our load average is complimentary to the network and also that meets our transit times. And in the fourth quarter, as I mentioned, our service was consistent and reliable, I'm happy with that but certainly if customers choose some of our premium services, we've got different options that we engage. For example, to deliver a shipment from the East Coast to the West Coast over the weekend where they can avoid air freight charges.

And the last question to Jamie on the equipment side. As you exited 2014 you talked about the 140 million or so of new equipment that was brought on. Where did the average age sit of the fleet versus the end of 2013?

Yeah, we still don't give that out in terms of age, Dave, but I look at it more in terms of miles than I do in terms of calendar age. I kind of go back to what we've done in the past about turning the fleet on its head and kind of linking it from the most utilized to least utilized and we filled the most utilized. It's not as bad as people think and we're going to continue to reinvest in it. As we said in the last call we're going roll out 600 new tractors over the next six months and we're continuing on that pace. We're in line with everybody else at this point.

Okay, thank you.

The next question is from Brad Delco with Stephens.

Good afternoon, James. Thanks for taking my question. The first one I just wanted to see if you could give us some detail in terms of your end market exposure and maybe how that may differ between the regional companies and Freight?

Well certainly from a regional standpoint, those three companies are very well set within the markets they've been serving for many, many years. In fact right away just celebrated their 95th year in business last year. We don't see expanding the footprints of any of those thee companies. We like the position that we're in. We like what they're doing. When you really think about Freight and what we're trying to do there from the arrays of services that we provide from two day to five day to premium services to O-net, I mean you name it, they've got a big array of services that they provide. But I think it's just a matter, Brad, of us continuing to execute on the fundamentals and doing the things that we sorely needed to do and like I said in my prepared comments, this is really the first time in years that YRC Freight has been able to stick to its goal to getting its freight mix right and going hard at yield increases. We have some more work to do there, but really everything is pretty much set with how we're going to market and what we're trying to do at all four operating companies and now it's just a matter of continuing to improve our execution.

Gotcha. I appreciate that color but I guess in terms, and I apologize I wasn't very clear. In terms of what percentage of your customer base you think is more sort of retail versus more industrial exposure? Does it differ much between the Freight and regional companies?

We typically doesn't get into discussing our segments by channel but just know that we've got focus on all of those and all the ones that we're participating in and we're just not going get that what percentage is retail and manufacturing.

I'd say, we're probably one of the most diversified carriers in the United States, if not north America. We ship to market. If you think about where some of the regional companies are located and YRC Freight's national overlay, we're about as diversified as they come.

Gotcha. Jamie, I did want to ask a question on the P&L. The operating expense and supplies line, that was down about $29 million year-over-year. Was that just fuel or is there more items that you saw some deflationary maybe pricing or cost in that line item?

There was one other one in there, Brad, and that was professional services that we did not incur in the fourth quarter of 2014 versus 2013. It's a been a relatively clean quarter compared to over a year ago.

Thanks for that color. Lastly, can you just sort of remind me what your wage inflation looks like for 2015 and 2016 and when that goes into effect?

Nothing in 2015. And then the timing in 2016, I'll got back to you on the specific amounts, Brad, but it's not that much. I think I've got to the in my mind but I don't want to lead you astray so I'll follow back up with you.

Okay, guys, great. Thanks for the time.

Thanks, Brad.

The next question is from Rob Salmon with Deutsche bank.

Hey, thanks for the follow-up, guys. If you can walk us through kind of how the yield net of fuel progressed throughout the quarter and any color in terms of how that's trended thus far in January to the extent you're willing to comment relative to how that performed in December?

I can tell you, Rob, this is James, that the momentum that we created in the third and fourth quarter continues into January. I don't have the revenue or the yield excluding fuel surcharge by month in the quarter. I've got by fuel surcharge being included.

What I would say, if you look at the difference between the two, YRC freight being up 5.8% on a revenue per shipment basis including fuel surcharge, weight was flat and revenue per 100 weight increasing 7.4% excluding the fuel surcharge, 7.4. Including 5.8, I would just take that and apply that to the same numbers we have in the press release. We're not going to continue to break it out too many different ways but if you're looking at the press release, we gave you the monthly numbers in there and I would just mirror that.

Okay. And then Jamie, as a point of clarification, for the 1 percentage point EBITDA margin headwind from the shift toward operating leases in 2015, are you excluding any sort of benefits from lower maintenance expense and improved fuel efficiency in that equation, or is that incorporated in the one-point headwind that you say?

That's a great question. That's excluding. We're just talking straight holding everything else constant lease expense.

Okay. And then could you give us a bit of color in terms of what your expectations are on those two fronts and what that would mean for the EBITDA margin?

I would say it's better. I'm not going to say it's going to offset the lease expense. It would be a smaller number but we fully intend to take advantage of not only the better aerodynamics, the better fuel mileage that we'll get from that and better maintenance but also the better safety part of that equation. There's going to be a little bit of leasing headwind but there's certainly going to be some offsetting expenses. It's a very good question.

Great, thanks so much.

The next question is from Thom Albrecht from BB&T.

Just a couple of follow-ups. What was the approximate change in that professional services fee, Jamie, that you mentioned?

Hello?

Yeah, I'm here. I'm sorry, Thom. In terms of the professional services fee, it was about $3 million or $4 million.

Okay.

Better in the fourth quarter of 2014 than 2013, to be clear.

Yes, a lower amount. When I look at that operating supplies and expense line, a year ago it was about 23% of revenues. I would calculated that it was about 16% fuel and 7% maintenance. How close is that?

We're not going to break it down, Thom. I'm not sure if anyone else does in this space, at this point we're not going to get into the that level of detail.

Okay. Really all I am trying to accomplish by asking that question is just trying to think about the drop in the fuel. It just seems like because you have an older fleet, the drop in fuel probably is a little bit more of a positive for you, sometimes people want to interpret that you're benefiting more from surcharges but I think my perspective is you might benefit a little bit more from the absolute drop in the fuel price than some of your peers. I don't know if you want to comment on that or not.

You know, Thom, I don't want to comment on behalf of our peers and I don't know how their rate structure is different than ours. I think it's pretty consistent across the industry. It's an incredibly efficient market as you know.

Right. Lastly, given what you shared about CapEx, it was a bit different in that you were willing to talk about what you did, would you expect 2015 to be similar or greater?

All being equal in what we know now, probably not too dissimilar. We're going to continue to reinvest in all areas of the basis, especially on the revenue equipment on the technology side of the house as well.

Okay. All right. Thank you.

There are no further questions at this time. I will turn the call back over to the presenters.

Thanks, Mike. That conclude our call for today. Thanks everyone for joining us. Please contact me for any follow-up questions now might have. I'll turn the call back over to you.

This concludes today's conference call. You may now disconnect.