Yellow Corp (YELL) 2015 Q1 法說會逐字稿

Good afternoon. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the YRCW first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Stephanie Fisher, Vice President and Controller, you may begin your conference.

Thank you, Kelly, and good afternoon, everyone. Thank you for joining us for the YRC Worldwide first quarter 2015 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 meanings 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 those 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 10-K and 10-Q.

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

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

Thanks, Stephanie, and thanks to all for joining our first quarter call. Despite yet another challenging winter, I am pleased with the progress we continue to make in arguably the most difficult quarter of the year. Overall, our first quarter results are much improved from a year ago, thanks primarily to a fundamentally improving YRC Freight performance.

As we discussed during our 2014 third and fourth quarter conference calls, improving our yield and freight mix has been our number one priority. We have been on a methodical march at all four operating companies to make adjustments and, at times, difficult decisions to improve yield and our freight mix.

No doubt we have traded volume for yield, but we are comfortable with the plan that we are executing and will remain committed to that end. Improving the first quarter adjusted EBITDA at YRCW from $23 million to $59 million validates our strategy.

At YRC Freight, their operating ratio improved 430 basis points year over year, and as Darren will discuss, YRC Freight made a strategic decision to exit some smaller shipments, which, in turn, cause weight and revenue per shipment to increase. And while there may be a slight negative impact on efficiencies based on this decision, it is absolutely the right thing to do, as freight characteristics with heavier shipments with higher revenue per shipment should improve profitability.

To that point, we like the bottom-line improvement that we are seeing at YRC Freight, with EBITDA improving over $35 million from a negative $3.7 million loss in -- excuse me, from a negative $3.7 million in Q1 2014 to a positive $32.1 million in Q1 of 2015.

The regional carriers also made some strategic freight decisions during the first quarter, which drove the revenue per shipment and weight per shipment up as well on a year-over-year basis. However, their operating ratio deteriorated 70 basis points year over year due to an additional $7.7 million of expense primarily related to adverse development of prior-year liability and Worker's Compensation claims.

Additionally, one of our regional carriers was severely impacted by the difficult winter weather in the Northeast during the quarter. Despite the two items that I just mentioned, and having 2.5 less working days, the regional carriers' adjusted EBITDA was basically flat on a year-over-year basis at $26 million.

Moving forward, we have hired and will continue to hire and train employees and provide advance coaching and support at all levels for our new and current employees. From our terminal managers to our front-line supervisors to our dock P&D and line-haul drivers, we believe investing in our employees is key to our collective success.

We will also continue to execute our strategy of improving yield and freight mix in all four operating companies. Improving productivities will equally be important to build on our current operating momentum and results. We will confidently sell the value, scale of coverage and service that YRCW brings to the marketplace, whether it is in our long-haul business at YRC Freight or the one- and two-day business at Holland, Reddaway and New Penn.

In addition to concentrating on yield, safety continues to be front and center of everything we do. We spent thousands of hours in the first quarter across the four operating companies training and communicating with all employees that working safe is a condition of employment and that we expect everyone to work safe and go home safe every day.

We have previously discussed our need to reinvest in the business, and to that end, we leased approximately 225 tractors and 600 trailers in the first quarter, and we will take on additional equipment as the year progresses. In our drive to be the safest carrier on the road, all of our new tractors will have the latest safety technology, and by the end of 2015, to the extent that it is practical to do so, we intend to install aftermarket in-cab safety technology in most if not substantially all of our existing fleet as well. The first quarter also saw the implementation of our line-haul planning technology at YRC Freight, which will assist with more efficient freight movement.

To wrap up my comments, over the last several years, YRCW has transitioned through several different phases. When this Management team came onboard, we were definitely in a survival mode. Over time, we moved the Company into a stabilized environment and certainly had to go through some well-publicized peaks and valleys to get there. Now we are transitioning to a state of profitability, as we have increased LTM EBITDA by approximately $60 million, to $280 million.

However, we know there is more opportunity, and while our 33,000 employees have worked through some difficult times, they understand what we need to do in order to continue our current pace of improvement, so I thank our employees for staying the course, as I believe we have better days ahead of us.

With these comments, I'll now turn the call over to Jamie.

Thanks, James, and good afternoon, everyone. For the first quarter of 2015, we reported revenue of $1.19 billion, down from $1.21 billion in 1Q 2014 largely due to the decline of fuel surcharge revenue at both segments and a strategic volume decrease at YRC Freight, as they placed yields and profitability growth over market share or tonnage growth. At the regional level, both tonnage and pricing increased on a per-day basis quarter over quarter, but there were 2.5 fewer working days in 1Q 2015 versus 1Q 2014, adding to the overall decline.

In terms of consolidated operating income, it increased $36.1 million from a loss of $32.4 million in 1Q 2014 to an income of $3.7 million. And in the same vein, adjusted EBITDA increased $35.9 million to end the quarter at $58.8 million. In 1Q 2015, operating income included a $1.3 million loss on asset disposals, compared to $200,000 loss on asset disposals in the same period of 2014.

For the year-over-year first quarter stats, YRC Freight's tonnage per day was down 4.1%, but revenue per shipment including fuel surcharge was up. On a monthly basis, tonnage per day decreased 0.8% in January, 5% in February and 6.7% in March.

On the contrary, revenue per shipment excluding fuel surcharge was up by 3.8%, and revenue per hundredweight including fuel surcharge was up 2.6%, and weight per shipment was up 1.3%. If you excluded fuel surcharge, revenue per shipment was up 9.6% and revenue per hundredweight was up 8.2%.

The regional carriers grew both tonnage and pricing on a per-day basis. Tonnage per day increased 1.9%, which was comprised of an 8.5% increase in January and decreases of 0.7% in February and 1.4% in March. Revenue per shipment including fuel surcharge increased 2.1%, which included an increase in weight per shipment of 1.4% and an increase in revenue per hundredweight including fuel surcharge of 0.8%. Again, excluding fuel surcharge, revenue per shipment was up by 7.3%, and revenue per hundredweight was up by 5.8%.

As for the results, for the first quarter of 2015, YRC Freight improved operating income by approximately $33 million over the prior year to essentially break even, which translates into a 430-basis point improvement in OR margin and an improved adjusted EBITDA of $32.1 million, a $35.8 million increase over the first quarter of 2014. The improvement on profitability is primarily due to disciplined pricing and continued active management of the freight mix offset by lower productivity.

Our regional segment reported operating income of $4.6 million, a decrease of $3.3 million from 1Q 2014 and an operating ratio of 99. This decrease is largely due to 2.5 fewer working days, an additional $7.7 million of expense related to adverse development of prior-year liability and Work Comp claims, which James already addressed, and $5.4 million of additional lease expense as we continue to enter into operating leases to recapitalize our fleet.

On an adjusted EBITDA basis, the regional segment reported $26.2 million, which was a slight increase from the $25.9 million reported in the first quarter of 2014.

In terms of liquidity, our cash, cash equivalents and amounts able to be drawn under our ABL facility at March 31 was $175.6 million, down from $198.2 million at the end of the year and down slightly from the $183.2 million at March 31, 2014, as we used additional cash from operations to reinvest in the business and doubled the amount of capital expenditures on a year-over-year basis.

As usual, I'd like to leave you with several parting takeaways. First, during the first quarter of 2015, we spent $21.3 million on CapEx, and excluding the sleeper units we normally lease, we entered into operating leases for an additional $35.1 million of capital value equipment, for a total of $56.4 million.

In the first quarter of 2014, those exact same numbers were $11.7 million on CapEx and no new leases in the first quarter of 2014, for a total of $11.7 million. So you can see, on a capital value equivalent basis, we spent almost five times as much this quarter than we did the prior year's comparable period.

In terms of units, we leased 225 new tractors, 600 new trailers. For comparison purposes again, we leased approximately 350 new tractors and 900 new trailers in all of 2014. And before you ask, the lease expense was about 1.7% of revenue in 1Q 2015, compared to 1.1% in 1Q 2014. As we have stated, we are investing back in the business and will continue to do so in the form of operating leases to the extent that it makes sense.

And today it makes sense. We are able to enter into these leases at a lower rate than our cost of debt, and the down payment for these leases is substantially less than an outright purchase, which allows us to preserve liquidity to invest in what we believe to be high-yielding technology projects.

Second, and while we're on the topic of technology, in addition to all of the new units rolling off the line with the latest and greatest accident prevention equipment, such as lane departure warnings, adaptive cruise control and stability control, we have started a three vendor aftermarket in-cab safety pilot for our existing fleet. We are targeting to have most, if not substantially all, of our existing fleet retrofitted by the end of this year. This is an aggressive goal and, while still in the testing phases, we believe the returns justify the pace.

Third, as James mentioned earlier, on a consolidated basis, we increased adjusted LTM EBITDA by approximately $60 million, to $280 million, which translates into a funded debt-to-adjusted EBITDA ratio of 3.9 times. This time last year, that ratio was 5.2 times. This is the first time this Company has been under 4 turns since 2007, and is proof positive that we continue to invest back into the business and the denominator of that equation and that those investments are absolutely paying off.

Fourth and finally, because I know you guys want me to get to the end of my list, while our financial progress was notable in the first quarter of the year, there is still much more to do. Specifically, we must improve our productivity at all of our operating companies to further drive our operating results.

Our results in this area have not met our expectations, and each of our operating companies have launched an initiative to communicate and engage our most valuable asset -- our people. We fully anticipate this effort will ultimately drive improved operational performance.

At this point, I'll turn the call over to Darren to discuss YRC Freight's results and their priorities for the balance of the year. Darren?

Thanks, Jamie, and good afternoon, everyone. I am pleased to report that our strategic focus on pricing discipline, people and operational processes contributed to a much improved financial performance in what is typically a challenging quarter.

Consistent with our strategy for the year, we placed yield improvements over tonnage growth and did see shipment volumes decrease as we worked to improve the quality of our revenue. Our primary volume decline was due to the intentional reduction of minimum charge shipments from our corporate channel, as we removed many of these from our network to improve mix and profitability. The approach paid off, as we reported positive results in weight per shipment, revenue per shipment and revenue per hundredweight, which ultimately helped improve our margin.

As Jamie stated, we launched an initiative that is centered around communication engagement with our front-line employees, who drive the revenue generation and operational performance of the Company. It's geared to set a sustained, continuous improvement foundation for YRC Freight.

The employee engagement initiative is currently focused on key distribution centers that handle 40% of our freight. We have launched new disciplines into three DCs and will roll out this program to four additional locations in the next 14 weeks.

At these DCs, the process is being led by employee groups working with outside consultants, because we feel strongly about tapping into one of the greatest resources available to us, the most professional and tenured employees in the industry. We are proud of the ideas we were able to implement based on their feedback, creativity and determination through this effort.

Safety remains critically important. We invested nearly 11,000 hours in safety training in Q1. New processes, 360 peer field safety trainers, and improved communication led to a year-over-year reduction in lost time injuries and vehicle accidents. And we are excited about the number of employees who have volunteered for the safety trainer roles in addition to their normal day-to-day responsibilities.

Technology investments in terminal and network operations continued in Q1, with the rollout of dock tablets to all distribution centers and the implementation of line-haul system upgrades, which give us greater visibility and tools to improve volume balance across our network. These types of investments, along with the new trucks and trailers coming into our network, are tangible signs that we are investing in the long-term success of our Company.

I was proud to introduce our commitment to hiring military veterans through our partnership with Hiring Our Heroes at an event in February, alongside the US Chamber of Commerce. We are aggressively recruiting and hiring drivers and dock workers and have seen our partnerships and new programs make a positive impact.

Lastly, we remain committed to the four foundational priorities of safety, service, efficiency and everyone sells that are the roadmap for continuous improvement at YRC Freight in 2015 as we provide safe and reliable transportation solutions that make a difference for our people, our customers and our communities.

With these comments, we're ready to take your questions.

(Operator Instructions). David Ross, Stifel.

Darren, you talked about, I guess, getting rid of some of the lighter-weight shipments, smaller shipments and really removing minimum charge freight. Why was that, I guess, the targeted approach, rather than just raising the minimum charge?

David, that's exactly how we moved those shipments out of the system, is by targeting that. Where it really plays in strong for our Company is with the length of haul. That length of haul went up 18 miles this quarter versus last year. So at 1296 miles, those are crucial that we get paid appropriately for those shipments. And with the pricing that we went to, many of those shipments did exit the network.

Okay, so you raised the minimum targets, and that's what caused the freight to leave.

Absolutely.

Excellent. And then any commentary on April volumes and yields? Are they trending better than we exited March, both, again, on the volume side and on the yield side?

David, this is James. Volumes are down, but they certainly have slowed their rate of descent over the last couple of months, and we're still performing as we would like to perform with our yield.

And the only thing I'd -- David, this is Darren. The only thing I would add to that -- from a contract rate negotiation perspective, we did see solid results in Q1, and those results continued on into April.

And then last question is just about the 401(k) match. I read that that's being reinstated or has been reinstated. Is there a significant cost to that, and how many employees does that apply to?

Yes, David, this is Jamie. It's not material at all. It's for our non-union employees, and about 5000 of those. And you know as well as I do that that's 100% voluntary, so it will simply depend on the participation rate.

Excellent. Thank you very much.

Thank you, David.

Scott Group, Wolfe Research.

Did you give -- I'm sorry if I missed it. Did you give the monthly tonnage numbers?

Yes, we did, and I can give them to you. Give me just one second again. So at YRC Freight, on a monthly basis, tonnage per day decreased by 0.8% in January, 5% in February and 6.7% in March. And on a regional basis, it actually increased by 8.5% in January and decreased by 0.7% in February and 1.4% in March.

Okay, that's helpful. And James, your point is that April is down, but not down as much as that 5% to 6%.

That would be correct, Scott.

Okay, even though the comp comparison looks like it's tougher.

I didn't hear the last part.

Well, the comparisons -- I mean, you were up a lot in second quarter last year on tonnage, so the comp gets tougher, but you're saying even with that, you're still less worse. That's good.

Yes, that comp really got tough in -- or got more difficult in May of last year. So like I said, it's decelerated but certainly slowed compared to what it was in March.

Okay. So Jamie, I see salaries is down $20 million or so. Can you just talk through what's driving that and how sustainable that is?

Sure. So we are looking at a couple of different factors going on there. One, first and foremost, is lower volume at YRC Freight. The other one is 2.5 fewer days at the regional companies. We also had some lower group insurance payments. And because Worker's Compensation rolls through (inaudible) for us, so do our LCPs that support that program, and because of the refinancing, we saved a couple million on that as well. So there are three or four different factors that are leading to that.

Okay. James, just maybe big picture, macro -- clearly, a lot of concern out there in the market. What's your pulse of the economy right now, and how does that impact the way you're going to go about pricing the business, if it has any impact at all?

Good question, Scott. Our focus is going to continue to be on yield growth and improving our profitability. It's been hard to get a good pulse on the economy the first quarter. We had a lot of severe winter weather up in New England and the Northeast. And some of the factors that we look at have given us some mixed signals, but I think we're positioned overall with the strategy that we have in place and the value and the scale of coverage that we provide to try to be as successful as we can in getting the freight that we would like to get, but we're just going to continue to be working very hard with our freight mix.

And I think I said it on a couple of other quarterly calls that we haven't had this opportunity in a number of years to really try to get our freight mix right once and for all, and so we're going to continue to work on that until we get the network running the way we want from an efficiency standpoint at YRC Freight and then continue to maximize what we do every day at the regional carriers.

Okay, that makes sense. And then just last thing, Jamie -- so we've seen nice improvement in EBITDA, but the total liquidity has been dropping the past few quarters. Help us understand that dynamic of one getting better, one getting worse. And do you have a -- and how much of this is seasonal and you think just starts to sequentially start improving again? Do you think that we start to see that in the second quarter?

Yes, I'd say it's predominantly seasonal, Scott. And the reason I say that is anytime between December and March -- that's when the bulk of our annual renewals are. The insurance comes through there as well. We had our IBT bonus that went through there. We also had a pension payment go through there. So I bet you we had anywhere between $70 million, plus or minus, in payments rolled through just in the first quarter that are on an annualized basis.

But if you went back to the first quarter of 2014, we were at about [$184 million], now we're at about [$176 million]. So there's a slight decrease on a year-over-year basis. But we're investing a lot more in CapEx, and we're investing back in the business. We're going to double down and continue to double down.

Okay. All right, thank you, guys.

Thanks, Scott.

Art Hatfield, Raymond James.

I'd just like to follow up on Scott's question about the liquidity, and what you said, Jamie, was helpful. But can you talk about -- is there a level by which you do not want to go below on your liquidity levels? Forgive me for asking this. I couldn't remember, and I tried to look it up, but are there covenants related to minimum liquidity requirements that you still have?

Yes, our -- great memory. The good news is for us that memory is in the past. The minimum covenant -- or at least the minimum liquidity requirement was more the deal that we refinanced in February of 2014, so that covenant no longer exists for us. So now we're just using really CapEx to be the lever and governor of liquidity. So to the extent that we continue to improve our operational performance, we're going to continue to plow that money right back into the business.

Great. That's helpful. Second question -- looking at the unit operating income, just looking at corporate, it was only negative $1.1 million, a big drop year over year and big drop sequentially. I don't recall that you had talked about that in your comments. Can you address kind of what's going on there, and should we expect that to kind of bounce up to a more normalized level that you've seen over the last couple years going forward?

Hold on one second, Art. That's such a small number for us. Let me see if I can't get a bead on it.

I know.

Yes, I'm looking at about $500,000 of adjusted EBITDA in corporate for 2015, $700,000 for the same period of 2014. It's just not a material enough amount for us to really pay that much attention to. From what we're doing on a corporate basis, we're continuing to evaluate our volume, and to the extent that we need to make adjustments at the corporate level, we're the first ones to do it.

Thank you. And then, finally, you all have talked -- you spent a lot of effort working on safety. Is there anything you can point to or talk about right from a metrics standpoint or maybe even from a dollars standpoint the improvement you've seen in that? And additionally, and actually I think more importantly, kind of what the opportunity is going forward as you continue to invest in safety within the business?

Art, this is James. I'll jump in and discuss it just for a second, and then Darren or Jamie may want to follow up. But, yes, safety is a big opportunity for us. Number one, we want our employees to come to work safe and go home safe, so that's the first and foremost reason why we are so about safety.

But just over the last several years, the operating companies have had some severe accidents, and we're spending a lot of time putting drivers through Smith System training, we're talking about the installation of this in-cab technology, and we've just got to do a better job of training and making sure that our employees understand the role that they play.

But there is a big opportunity for this Company to improve financially if we can continue to improve our hours worked between lost time injuries and our miles driven between accidents. Those are two of the really key factors that we are working daily on, and so that's going to continue to be a big priority for us. I don't know, Darren or Jamie, if you want to jump in there.

Yes, certainly, James, I'll jump in. I mentioned in my comments about the 11,000 hours of safety training that we did in Q1. That certainly involved the Smith System training for our drivers. I mentioned we've added that 360 peer safety trainers, increased the frequency of our pre-shift safety focus messages. And then also we're increasing the use of our in-cab technology, which is designed to reduce the frequency and severity of those accidents.

I'll kind of wrap that up by saying those investments are showing some initial positive results at YRC Freight. In the Worker's Comp area, our open claim count has gone down each of the last five months. In the liability area, we've seen an increase in our miles between accidents, and that's a good thing.

Great. Thank you for the help this afternoon.

Thanks, Art.

Rob Salmon, Deutsche Bank.

As a follow up to Art's questions with regards to the safety investments you guys are doing. Can you give us a sense in terms of the initial investment you're planning for the remainder of the year, whether it's coming up in the form of operating expense or CapEx? And any sort of way we should be kind of framing up the potential ROI on those investments?

I'll let Jamie handle that from a financial standpoint. Darren, any more comments you want to make about the question?

Certainly. The 11,000 hours of training I mentioned, that's a direct expense that we incurred in the first quarter of this year that we did not incur in the first quarter of last year. So I think that's a testament to the wise investment piece from the safety training, and that's already paid for. We're going to continue that process and reap those benefits. But from a wider view, I'll let Jamie respond on the investment.

Before Jamie talks, Rob, at the regional companies, they probably have more opportunity than even YRC Freight does based on their performance over the last couple of years. And they took a big hit in the fourth quarter of 2014 and another big hit in the first quarter of 2015. And so the Smith System training, the safety training with employees, the employee-led safety committees -- I mean, we have a full court press at the regional companies as well.

And it's frustrating that we haven't made more progress, but I can tell you that the Management team at each one of the four companies are very committed to getting this opportunity under control and making it a positive for our Company. So Jamie, I'll let you talk about the financial piece.

Yes, so your real question is numerically on a three-fold -- OpEx versus CapEx and ROI. So on an OpEx basis, those 11,000 hours flow right through the P&L. It doesn't show up on the balance sheet.

So I'm glad you asked, Rob, because it actually is an investment in the Company that's going to flow through the P&L, and we're going to continue to make that investment in terms of those hours for the foreseeable future. So I think that is truly an investment on our time and our people, and really it's almost an opportunity cost in some sense, because those are hours that they're not on the dock actually moving freight, so that's going to continue.

On the CapEx piece of it, it depends on the vendor that we go with, and it also depends on how we finish them out and on how many units. But I'll tell you that I anticipate the ROI from the in-cab technology piece to be anywhere between 40% to 70%.

That's helpful, Jamie. And any kind of initial thoughts in terms of the potential ROI? I would imagine it's really very high, but any additional color you can provide there?

Not really, because we don't know which one of the three that we're going to go with. If we go with something that has simple auditory warnings alone, or if we do auditory with event recorders, that's a significant difference in cost.

The one thing that I think a lot of people may overlook for us is the amount of LCs that we have posted supporting both Work Comp and BIPD liabilities, because to the extent that we can actually reduce those accidents -- on both sides of those, by the way -- our LCs are going to come down. When our LCs come down, so will the LC expense that goes with it. So I think it's actually kind of a two-fold return.

Numerically, you've got the fact that you're going to see the accrual rate -- the accrual rate should come down to the extent that the Smith System training reduces the Work Comp claims. And to the extent that the in-cab technology reduces our liability claims, we should see both the reserve adjustment and the accrual rate come down if that does continue to, I guess, hold true.

The second piece of that, again, is going to be more on the balance sheet, and that's going to be more just simple reduction of LCs and expenses that go with it. The one thing that we cannot say enough and stress enough is this has to do with the safety of our employees, and we're going to focus on this every single day with every single employee at the beginning of every single shift.

Makes sense. As my follow up, Jamie, I'd like to dig in a little bit more in terms of your thoughts. Obviously, we saw a precipitous decline in terms of the price of fuel. You guys made an adjustment with regards to fuel surcharge mechanism in February. How should I be thinking about the puts and takes to fuel in the month of February from an EBITDA perspective as well as from an OR perspective? Any color would be really helpful there.

Yes, so it's interesting, because I think that where we sat and had this conversation literally 90 days ago, and if you even back up the tape 45 to 60 days, even before that, as fuel was literally falling from the sky, I thought it was going to have more of a headwind than it actually ended up having. Because the statement that we made then was all else remaining equal, if everything remained constant, this is what we would have -- at least internally, this is what we would have thought would have happened.

Well, this is a very dynamic world. There's nothing static about the environment we operate in, and several things have happened that I think have helped offset that decrease in the fuel surcharge, and I'd say first of all it was an increase in the base rate. Even though it's a lower percentage of a fuel surcharge, we're applying that percentage to a much higher base, so that had a tremendous positive impact to the profitability of that piece.

But you also had better miles per gallon than we had anticipated and fewer miles driven, so we had a lower length of haul. So if you take those three things in combination, the impact from a fuel surcharge decrease didn't impact us as negatively as I would have otherwise thought.

And was it -- did it end up being an aid to the OR improvement, or was that more of kind of offset? Just (inaudible), I would think lower topline, lower expense should actually help it from an OR perspective. Am I thinking about that the right way?

No, you are, Rob. I just don't think it's that much. I think it'll actually -- it'll offset through time, so I really wouldn't even bank on that.

Fair enough. I appreciate the time.

Tom Albrecht, BB&T.

Some of my questions have been answered, but I wanted to just kind of throw out a couple thoughts. I guess, first of all, can you bring us up to speed on the progress with dimensioners? Either a ballpark, what percentage of shipments you might be getting through, how trained your employees are, et cetera, just some comments there.

Thom, this is James. Yes, the majority of those were implemented at YRC Freight, so I'll let Darren speak to that.

Yes, as of last quarter, that number has stayed consistent. We've got 43 dimensioners at all of our distribution centers. We consistently see the percentage of freight increase that goes through these dimensioners as we expand out into different commodities. As we do that, the employees are trained. It's not a material impact on productivity, so we couldn't be more pleased with the ROI efforts we've seen on the dimensioners.

As we look at expanding that effort, there's new technology coming along that will allow larger shipments to go through these, and that's currently what we're evaluating for the next phase.

So like on a typical week or month, what percentage of your shipments are you running through at freight?

It's less than 15%. It's going to fall in between that 12% to 15% range right now on what we're running through.

And I would say, Thom, that that varies a little bit. I think on average, it's probably closer to 10%, but now we're splitting hairs between 12% to 15% to 10%. I think the benefit for us is we're starting to use this particular piece of technology -- originally, it was just simply on a re-rate basis. I mean, it was basically getting paid for the work that we do.

Now we're starting to run dim studies with some of our customers on some other stuff that we're doing. So I think that this is actually going to be one of those types of investments that's going to continue to pay off and actually might pay off more in time as our customers actually start rating their shipments more appropriately. So we might not get the re-rate revenue, but it will be priced more appropriately going into it.

Yes, and I would just follow up on that to say that that 12% to 15% is the shipments that have revenue opportunities, and with our length of haul, those shipments can have significant revenue opportunities. As we expand to include this information in our pricing strategy, that's where the percentage of shipments really increases.

Right. What's the eventual potential that you see to run through -- 30%? 20%?

Well, I think it depends on the number of machines that we have. I mean, right now we have them all at the -- 23 DCs have 43 machines. I think that's the right number. Is there incremental capacity that we could run through those today? Yes, there is, absolutely, but there's also I think more opportunity to put them at our larger (inaudible) and capture those out there, so those are things we are reevaluating.

We'll probably roll out a few more this year, but we're just going to do it on a judicious basis. Because so much of our freight runs through those 23 DCs, it doesn't make a lot of sense to put them down at another 200 terminals where they originate and then they transfer to the DC. We don't need to have them in both places.

Sure. All right. What percentage of your revenues roughly are coming from 3PLs at freight? And then I imagine it's a completely different number at regional.

Yes, and we've never broken down the channel information, Thom. It's one of those things where it changes, especially with what we're doing with our freight mix, so it's probably changed more recently than it has in the past. It's pretty stable. And what I would also say is that we're probably not too dissimilar to our larger national peers.

And our regional companies are about the same percentage as YRC Freight.

So just to clarify, some of your peers, public and private, are -- over 30% of their revenues are coming from 3PL, so are you saying that you're consistent with that type of figure?

Yes, I'd say the range going across the portfolio of companies, Thom, is probably 25% to 35%.

Okay. Let me just throw out a wild hypothetical. Within your regional network, you've got New Penn, Holland and Reddaway. What would happen if one day you just shut down Reddaway? It just seems like that's been the underperformer. I know you haven't necessarily acknowledged it that way, but what's the pros of keeping it open? What's the cons of, hypothetical, down the road shutting it down?

Let me say this -- I am extremely pleased with the regional carriers overall, and Reddaway is a fine company and is performing well right now. We obviously have opportunities with all three regional companies, but I wouldn't trade any of the three regional companies for anybody right now. They give great service, and if we can get past the last couple of quarters of having some bad guys on previous and past severe accidents and Work Comp, I have a lot of confidence about our three regional companies.

Okay. And then do you think you'll make money in the second quarter?

Well, it's something that we've never given guidance on, Thom, and I don't think we're going to start today. We're certainly going to continue to reinvest back in the business. So when you start talking about making money, I tell you we've been very consistent about reinvesting back into it.

No, I get that. The reason I ask, though, is I think the -- when you look at the variety of estimates out there, there is a sense that -- a consensus expectation that you'll be profitable in the second quarter. And given that you were in the fourth quarter and you should be further along with your operations, it would seem to make sense, seasonally adjusted and everything else, that you'd be able to make money.

I think that's a good comment.

Okay. All right, I'll jump back in the queue. Thanks.

Scott Group, Wolfe Research.

Hey, guys, I'm all set. Thank you.

Thanks, Scott.

I like those types of questions.

And there are no further questions at this time. I'll turn the call back over to the presenters.

Thank you. That concludes our call for today. Thanks to everyone for joining us. Please contact me with any follow-up questions you may have. Operator, that's all for today.

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