Yellow Corp (YELL) 2015 Q4 法說會逐字稿

Good afternoon and welcome to YRC Worldwide's fourth-quarter 2015 earnings call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Tony Carreno, Vice President, Investor Relations. Please go ahead.

Thank you, Laura, and good afternoon. Welcome to YRC Worldwide's fourth-quarter 2015 earnings conference 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 on the fourth-quarter and full-year 2015 results and will be available during the question-and-answer portion of today's call.

Before we begin, I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this afternoon. 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 might be made on this call which are not historical facts are subject to uncertainties 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 Form 10-K and 10-Q. These items are available on our website at YRCW.com.

Additionally, please see today's release for a reconciliation of net income or loss to adjusted EBITDA on a consolidated basis, and operating income or 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. Today's release also includes a reconciliation of operating income or loss to adjusted operating income, and operating ratio to adjusted operating ratio on a consolidated and segment basis.

I'll now turn the call over to James to provide comments on our 2015 results and 2016 priorities.

Thanks, Tony, and good afternoon, everyone. We appreciate all of you taking the time to join our fourth-quarter and year-end 2015 conference call. I will make a few comments and then let Jamie recap our financial results. Darren is also here to review the performance of YRC Freight, and then we will gladly take your questions.

Overall I'm pleased with the progress YRC Freight and our Regional carriers, Holland, Reddaway, and New Penn, achieved in 2015. We remain steadfastly committed to our strategy of improving price, freight mix, and profitability over volume and market share throughout the year. As a result of that commitment and the nearly $90 million of year-over-year adjusted EBITDA improvement, we believe that our strategy was the right one for YRCW.

We ended 2015 with adjusted EBITDA of $333 million and more than doubled our operating income to $93 million, which we believe is also another important step forward in returning the Company to financial health. I'm pleased with how each of our operating companies executed their individual strategies. And it was encouraging to see that, even though the freight environment softened in the second half of 2015, we were still able to keep our main priorities squarely in front of us and not waiver from our commitment to improve EBITDA, profitability, and cash flow for the year.

I also believe that the foundation we formed in 2015 across all of our companies positions us well to drive shareholder value when the current inventory surplus clears up and the manufacturing portion of the economy starts to expand again. I'm also pleased with several other accomplishments we achieved in 2015, which should help us continue moving YRCW in the right direction.

Number one, I'm proud to announce that the eligible union employees at Holland, Reddaway, and New Penn will receive a profit-sharing bonus equal to 1% of their 2015 W-2 wages. From what we can research, this is the first time in the history of the LTL industry that a carrier has paid out a cash profit-sharing bonus to its unionized employees. Personally speaking, I'm excited to see our hard-working employees share in the success and results they are responsible for.

The good news is there is even more opportunity going forward: as our performance improves, so does their profit-sharing opportunity, up to 3% of their respective W-2 wages. We thank them for their hard work, and we look forward to these employees driving continued improvement in the Regional carriers operating results in 2016 and beyond.

Even though the financial performance at YRC Freight did not allow those employees to participate in a profit-sharing bonus in 2015, we are still encouraged by their operational and financial improvement. YRC Freight and its employees have come a long way, but still must continue improving to reach the minimum profit-sharing threshold of a 97.0% operating ratio.

I am confident in Darren and his team, and believe that everyone from our front line employees all the way up to the leadership team are working hard to improve the company's performance. Now that all of our union employees realize that profit-sharing bonuses are attainable, and indeed can and do pay when we perform, we look forward to all of them working toward the goal to receive a cash payout for 2016.

Number two, another one of our 2015 accomplishments was to continue progressively reinvesting in our business. Between capital expenditures and the capital value of leased equipment, we invested $239.7 million in our Company, an increase of $98.1 million over 2014. Despite our large increase in capital expenditures, we ended up 2015 with slightly higher liquidity than one year ago.

Number three, to that end, and in late 2015, we moved aggressively forward to start the installation of in-cab safety equipment in approximately 15,000 of our tractors. We anticipate that the in-cab installations will be substantially complete by the end of the first quarter of 2016.

We also will have the latest and greatest safety technology in every new tractor we take delivery of going forward. We are very serious and dedicated to our goal of being the safest carrier on the road. Our drivers appreciate the fact that we are making the financial investment to help them better navigate the increasingly dangerous driving conditions that they face every day, in a world with more congested roads and distracted drivers.

Number four, we also made progress by working diligently to upgrade our operating technology. From becoming an industry leader in the application and integration of dimensioners to installing technology that has proven success with linehaul optimization, we are at a seven-year high with our investment technology. We're also working with improved P&D software packages that complement new and improved handheld devices that should make us even more efficient. These technology investments should help us continuously move forward in a meaningful way.

Building on these accomplishments, our goals in 2016 will look very similar to what we have been focusing on as our results have improved. There are three areas.

Number one, continued yield improvement with a balanced and thoughtful approach to growing volume. We expect to achieve this through increased investment in our salesforce, including providing them with tools to make more impactful incisions decisions on pricing activities.

Number two, improving safety results. We are working with and investing in our employees to ensure that we strive to be the safest carrier that we can be. This includes the installation of the in-cab safety equipment and ongoing training.

Number three, improving productivity and operational efficiency. With better technology and employee engagement efforts such as the profit-sharing bonus opportunities, we hope to align our employees with shareholder value-enhancing results. We still have opportunities for improvement.

In closing out 2015 and starting 2016, we obviously would like for the freight environment to be better and improve throughout the year, but we will stay the course and remain focused on providing our customers excellent service, improving our freight mix, and improving our profitability in 2016. We believe LTL carriers continue to be rational with their pricing decisions, and that bodes well for the industry when the freight environment improves.

We also expect the government regulations coming down the pike in 2017 may have a direct impact on capacity in the transportation supply chain. Our goal is to be positioned for the future with an upgraded fleet, more modern and improved technology, and a more engaged workforce that understands that the better they perform, the better the Company performs, and in turn the better financially they will do. Employee engagement is important to the Company, and we believe our professional workforce and their experience should give us an advantage as we move forward.

I will now turn the call over to Jamie for his comments.

Thanks, James, and good afternoon, everyone. For the full-year 2015, we reported consolidated revenue of $4.83 billion, down from the $5.07 billion reported in 2014, with the vast majority of the decrease coming from a decline in fuel surcharge revenue and softer volumes, especially in the back half of the year. For context, the price of diesel was approximately 30% lower in 2015 than it was in 2014.

In terms of consolidated operating results, we reported operating income of $93 million, compared to $45.5 million reported in 2014. Excluding the $28.7 million nonunion pension settlement charge at YRC Freight in the fourth quarter, adjusted operating income was $121.7 million.

This noncash charge is a result of an increase in lump sum benefit payments under our nonunion defined-benefit plans. In an effort to continue derisking our balance sheet, we offered a voluntary lump sum payment option, which in turn reduced our long-term pension obligation and ongoing annual expense. The payments were funded from existing pension plan assets and therefore did not impact the Company's cash balance or liquidity; and per our term loan agreement, the settlement charge is excluded when calculating adjusted EBITDA.

As James indicated earlier, our full-year 2015 adjusted EBITDA was $333.3 million, an increase of $88.8 million over last year, and a 210 basis point margin improvement to 6.9% compared to 4.8% last year.

For the fourth quarter of 2015, we reported a consolidated revenue of $1.14 billion, down from $1.22 billion in 2014, and an operating loss of $15.3 million, compared to operating income of $31.2 million in the fourth-quarter 2014. Excluding the $28.7 million nonunion pension settlement charge at YRC Freight, adjusted operating income was $13.4 million.

Finally, we reported consolidated adjusted EBITDA for the fourth quarter of $66 million compared to $77 million in 2014.

Now for the year-over-year segment stats. For the full year of 2015, YRC Freight's tonnage per day was down 5.8%. Revenue per shipment including fuel surcharge was up by 1.7%, and revenue per hundredweight including fuel surcharge was up by 0.3%, while weight per shipment increased 1.5%. Excluding fuel surcharge, revenue per shipment was up by 7.7%, and revenue per hundredweight was up by 6.1%.

Those same stats for the fourth quarter of 2015 are as follows. Tonnage per day was down 6.8%, which was comprised of decreases of 5% in October, 8.6% in November, and 7.2% in December. Revenue per shipment including fuel surcharge was down 1.5%, and revenue per hundredweight including fuel surcharge was down 1.6%, while weight per shipment was essentially flat with the prior year. Excluding fuel surcharge, revenue per shipment was up by 4.4%, and revenue per hundredweight was up by 4.2%.

Turning to the Regional segment for a moment, the full-year 2015 tonnage per day was down by 1.9%. Revenue per shipment including fuel surcharge was up by 0.2%, and revenue per hundredweight including fuel surcharge was down by 0.7%, while weight per shipment increased 0.8%. Excluding fuel surcharge, revenue per shipment was up by 5.6%, and revenue per hundredweight was up by 4.6%.

For the fourth quarter 2015, the Regional segment also experienced a decline in tonnage per day. For the quarter, it was down 2.6%, which was comprised of a decrease of 0.1% in October, 3.9% in November, and 3.9% in December. Revenue per shipment including fuel surcharge was down 2%, and revenue per hundredweight including fuel surcharge was down by 2.2%.

Similar to freight, weight per shipment during the quarter was essentially flat as it was last year. Excluding fuel surcharge, revenue per shipment was up by 3.4%, and revenue per hundredweight was up by 3.3%.

Turning to the segment financial results for a moment, for the full year of 2015, YRC Freight's operating income was $18 million compared to an operating income of just $500,000 in 2014. Excluding the impact of $28.7 million pension settlement charge the full-year 2015 adjusted operating income was $46.7 million. Adjusted EBITDA was $167.2 million, for a margin of 5.5% and a $67.4 million increase compared to last year.

For the fourth quarter of 2015, YRC Freight's operating loss was $21.4 million compared to operating income of $24.5 million in 2014. Excluding the impact of the $28.7 million settlement charge, YRC Freight's adjusted operating income was $7.3 million. Adjusted EBITDA was $36.8 million, for a margin of 5% and a $7.2 million decrease compared to last year.

On the other hand, the Regional segment reported full-year operating income of $85.4 million compared to $66.1 million in 2014. On an adjusted EBITDA basis, the Regional segment reported a $21.5 million increase to $165.9 million.

For the fourth quarter of 2015, the Regional segment reported operating income of $9.5 million compared to income of $10.6 million in the fourth quarter of 2014. Adjusted EBITDA was $30.2 million, for a margin of 7.4% and a $3 million decrease compared to last year.

In terms of liquidity, our cash, cash equivalents, and managed accessibility under our ABL facility at December 31, 2015, was up approximately $11 million -- $209 million -- for the same period last year. We have been able to drive down our leverage ratio from 4.57 times just 12 months ago to 3.25 times this quarter.

As usual I'd like to leave you with a few parting takeaways. Almost one year ago to the day, on this very call, we discussed four goals: one, improving safety performance; two, improving productivity; three, focusing on yield; and four, continuing investing in technology.

As it pertains to safety performance, we ended the year with fewer work comp claims than we began the year. As we stated before, we plan to be substantially complete with our in-cab retrofit installation by the end of the first quarter of this year.

In terms of productivities, this is the place where we still need to improve. While we saw some green shoots, especially in load average, we are still lagging historical performance. We plan to continue investing in training, technology, and employee morale to address and improve our productivity levels.

On yield and revenue per shipment, excluding fuel, I don't want to say too much or repeat what James already said, but know that we were consistently one of the top carriers in the entire industry on a year-over-year increase, and that this is even after increasing weight per shipment.

Not only did we deliver on our commitment to continue investing in technology, but in 2015 we spent nearly $8 million more than we spent in 2013 and 2014 combined.

Finally, as we've previously indicated, we expect to start facing tougher year-over-year yield and revenue per shipment comps going forward. This is especially true on an ex-fuel basis. Obviously, including fuel, we along with everyone else in this space are already facing those headwinds.

As you think about 2016, I want to remind everyone: as we continue refreshing our fleet we anticipate incurring the increased lease expense that goes along with it. As discussed on previous calls, this incremental lease expense will pressure adjusted EBITDA margins, as will the annual union wage and anticipated healthcare increases as well.

At this point I'll turn the call over to Darren to discuss YRC Freight's results.

Thanks, Jamie, and good afternoon, everyone. The YRC Freight leadership team believes the professional employees, value, scale of coverage, and deal speed service network that we bring to the marketplace positions us well for the long term. We will stay the course on yield and network efficiency efforts, while focusing on bringing in the right freight at the right price.

This approach was validated in 2015 with year-over-year improvements in revenue per shipment and revenue per hundredweight. Yield efforts are lapping strong year-over-year comparisons, while demand is moderating. However, the yield improvement we achieved late in 2014 and throughout 2015 should continue to pay dividends in 2016 and beyond, as we build from that stronger base price that has been established.

Yield improvements more than offset volume and fuel headwinds in 2015 and drove an increase an adjusted operating income of $46.2 million for the year. I would like to thank all of our 20,000 employees for making 2015 a year in which YRC Freight increased its adjusted EBITDA to $167.2 million, which makes it the best financial performance since 2007.

2015 investments in revenue equipment, technology, safety, dock operations, and dimensioners should carry momentum into 2016. For example, over 25% of the internal network miles in 2016 are projected to be on YRC Freight tractors that are less than one year old, driving improved safety, increased fuel efficiency, and decreased maintenance expense.

Dock operations are expected to benefit from a fully deployed dimensioned program, upgraded forklift technology, and wireless dock tablet technology in all 23 of our distribution centers. Network optimization investments made in 2015 will be in use starting in Q2 2016 and will be further complemented with ongoing investment in 2016 that we expect to dynamically reduce empty miles and create density in the right places. This should protect service standards in our dual-speed network that includes standard ground on the economy side and time-critical on the priority side.

The beginning of 2016 has economic uncertainty for sure, but YRC Freight expects to focus on controlling costs, driving yield and efficiency, while putting safety first in everything we do. YRC Freight's 2016 goals that will likely sound familiar to many of you include what we consider our four foundational priorities.

First is safety. We'll continue driving behavior toward world-class safety through technology, training, communication, and compliance.

Second, service: providing reliable standard ground economy service and best-in-class time-critical priority service through our dual-speed network while continuing to provide one of the broadest portfolio of services in the industry.

Third, efficiency, productivity, and quality lift through technology and automation of our service cycle.

And fourth, everyone sells. Through a 1,000-plus-member sales and customer service organization, we expect to continue balancing volume and yield progression.

YRC Freight employees have the right attitude about being safe, being reliable, and making a difference for themselves, our customers, and our communities. I appreciate all their actions that continue to move us in the right direction.

Thanks for your time this afternoon. We would now be happy to answer any questions that you may have.

(Operator Instructions) David Ross, Stifel.

Yes, good afternoon, everyone. James, there were some announcements recently about some new hires that came over from competitors: Chet, Paul, and Don. Can you comment on, I guess, any changes going on, with them coming onboard, or the reason for the new management hires?

Yes, since that's at YRC Freight and Darren is sitting here, I'll let Darren answer that, Dave.

Hey, good afternoon, David; this is Darren. One great thing about the previous five quarters of year-over-year improvement and the progress that YRC Freight's seen in the two years since I've been President is we are being contacted by people in the industry that have experience and can contribute to the company in a way that continues moving us forward. So I think it's a good testament to our performance and also the confidence that people have about pursuing YRC Freight as a place of employment. So we're pretty excited about those things.

Then, Darren, on the linehaul side, you mentioned putting in some maybe more optimization technology, or looking at the network differently later this year. Does that involve any more meet and turns than in the past?

It really focuses on the technology side of that. This work began last year. We already have part of that in play right now, and the extension of that is actually some new off-the-shelf technology that is tailored just for YRC Freight that we'll have up and running in Q2.

It's really about the optimization of the range rather than a meet and turn setup. When you think about our network, I've got 325 sleeper teams, YRC Freight sleeper teams. We've got our internal linehaul network with our single man drivers. We've got a rail operation and then an over-the-road PT operation. So when you put all those together it gives us a lot of different options in the way we run our network.

Yes, Dave, this is James. I might add that we're using that same technology at two out of the three Regional companies as well, in different stages of implementation and integration. But we all like what we're seeing from this technology, so it should help us as we move forward.

Then last question is just on the regulatory front. With the ELD mandate coming through, where do you guys stand on having those tractors fully outfitted with the onboard recording devices? You talked about the in-cab installations, largely be done by the end of the first quarter. Does that include EOBRs in all of them in addition to dashcams and whatever else is going on?

Yes, our first priority is to get this in-cab safety technology implemented. We'll have the ability to some of those applications to implement the electronic onboard recorders, and we fully intend to be compliant with that by, I believe it's September 2017. So it will be a gradual roll-in over the next year and a half or two.

Thanks.

Thom Albrecht, BB&T.

Hey, guys. Congratulations on a good 2015, even though I know you're a little disappointed the way it finished the year. One of the things that I was looking at here was -- you had an exceptional performance at Regional in the second and third quarters. The OR was around 92 both of those quarters. I know in the last several years your fourth quarter OR at Regional tends to be a lot worse.

But I thought maybe given the progress in the second and third quarters that you might be able to manage closer to a 95, 95.5 OR; yet you were still over 97 and deteriorated year-over-year. What was going on there besides the economy?

We were still operating very soundly. We just had some volume reductions and fought through that. Might've been a little slow to react, perhaps, with the labor adjustments; but nonetheless, I think they've positioned themselves well for the future.

We're just really proud of the fact that we went from $66.1 million in operating income to $85.4 million; that's a 30% improvement. We think we've got the momentum there that can come on into 2016 and get us where we want to be.

But certainly the economy had a pretty good hit, especially at one of the Regional companies where manufacturing is prevalent.

Right.

If I can add there, Thom, there are two other things there. It is the bonus, the performance pay that we added; so that was a headwind in 2015 versus 2014. There's also the incremental vehicle rent I spoke about in my prepared remarks.

Between those two, that was probably a point or 2 of margin in total. So on a year-over-year basis, excluding those two things, we're probably not too far apart from what you thought we would be.

Right. What about -- you went through the monthly tonnage per day at the two companies, Jamie. How about the month of January for the two?

The month of January for the two what?

The two operating companies? Because you went through tons per day October, November, December for Regional and Freight.

Yes, so they're about the same relative to where they ended the quarter. So fourth quarter kind of extended into January of this year so far.

Okay. Well, but like when I look at Freight there is a big variance between minus 5% and minus 8.6%. Are you saying that that -- what, 6.8%, 6.9% is the number around January, so year-over-year tonnage decline?

Thom, this is Darren; I'll take that. You're exactly right. That November we hit our high point at 8.6% and then improved in December, and then January was also an improvement over November.

Okay, and then how about Regional? Consistent with that 3.9% drop in November and December, or what?

It might be just a little bit worse, but not much.

Okay. Then Jamie, on the rents and that, I'm estimating that rents, which are in that purchased transportation line, are at least 2%, maybe 2.5% of revenues. How close is that guess?

Give me one second. So for -- are you talking about for the quarter or for the year?

Well, for the quarter, which would kind of establish the run rate; and I'm sure we'd increase that a little bit next year.

Yes, if you said 2% to 2.5%, that's about right. That's exactly right.

About 2.5%?

Right between 2% to 2.5% on a consolidated basis.

Okay. Then I guess the one thing -- James, I guess this is for you. You're in a situation where morale has come a long way, but probably still could have a little bit of room to improve. You've got an economy that's presenting some challenges.

What can you do to sort of hurry up the recovery at Freight while you've got this window in 2017 and 2018 -- 2016, 2017, before you get into a countdown in 2018, I guess is what I'm saying? What can you do if the economy is not going to help you?

I'll start off with that, Thom, then let Darren jump in. But certainly from an overall morale standpoint, the 1% profit share bonus that we're going to pay to our Regional carrier employees certainly will help that morale out. I can tell you that YRC Freight is working diligently through some outside engagement, through employee training, employee communication, preshift meetings. There is no lack of effort there to get employees to try to do what we need them to do.

And I wouldn't say that the morale is bad at YRC Freight. It's just gone a different path over the last six or seven years that we've had to try to turn around, versus what our Regional carriers have undergone. They didn't have to go through a massive integration, and so it's a little easier at the Regional companies, in my opinion.

But, Darren, I'll let you jump in there and talk a little bit more about that.

Yes, I think I would start by saying throughout the year in 2015 we had the best adjusted EBITDA performance since 2007. And in the middle of that, we were making investments in dimensioners, revenue equipment, technology, safety, dock operations, and fully deploying and implementing a number of really large projects that are now in place and paid dividends in 2015, but in a great position to pay dividends in 2016.

So those investments in technology, that's allowing our staff's operations and our network to run more efficiently. The linehaul technologies from an optimization standpoint, we've got the new wireless infrastructure in all of our distribution centers, we upgraded our forklift technology. We've got equipment statusing improvements that has a big impact on the way we run our linehaul network.

The investments in our fleet that will drive the fuel efficiency, reduce the breakdown-related costs, also drive employee engagement from the new tractor standpoint. We've got initiatives in place to continue the engagement of our employees in allowing them to have a voice in all of these processes. And then also those investments extended into equipment services and the way we manage our parts inventory.

And, lastly, I'll say we've also added a dedicated resource around our office procedures. Thom, that sets us up for the best position I believe the company's been in from an execution and efficiency standpoint since I've been President. Now, certainly we don't have the yield opportunities like they were over the last six quarters for the next few quarters. But we're in a great position with the base we built with the yield piece, and we're going to continue focusing on that piece through the pricing technology investments we made.

So I feel good about the balance we're looking at and certainly well prepared from a liquidity standpoint and the position we're in for whatever the economy throws at us over the next several quarters.

When was the 1% paid? Has it been paid already, or it's going to be paid a little bit later in this quarter?

It will be paid in another, what? Couple weeks. Yes, couple weeks.

Okay. Then, Jamie, I know the debt-to-EBITDA improved year-over-year. I can't seem to find it in my notes where it was September 30.

September 30? Hold on one second. I know it was 4.57 a year ago. And September 30, it was -- give me one second -- 3.15.

3.15.

(multiple speakers) we were a little bit higher in EBITDA. Debt didn't change that much. But simple math would just tell you that it was 3.25 from 3.15.

Okay. Then refresh my memory. You laid out some kind of target ORs for Regional and YRC over a two- or three-year period, I think at the beginning of 2015. Was it 96, 97 for Freight and 93, 94 or 94, 95 for Regional?

It was 93, 94 for Regional and 95, 96 for Freight.

In the current climate, do you keep those targets in front of your people? I mean, how do you drive towards that? Do you think you have to push those goals off some?

Yes, I think there's two things going on there. The market changes every day. We made that statement at a point in time when the market was probably 91, plus or minus; I think we're probably in that 91 to 93 range now.

In terms of timing, I think we said -- and this is -- I'm dating myself now, probably two quarters ago, that it was a two-year journey. So this isn't something that we thought we would clip that coupon immediately. So we gave ourselves a little bit of time on that, Thom.

But in terms of the goals, your memory is good in terms of what they were: 93, 94 at Regional; 95, 96 at Freight. Some of these things are going to take time.

The investments that we made in 2015 on technology, the fact that we doubled but we did in 2013 and 2014, it's not going to pay end of the year. So in the fourth quarter of 2015, I didn't anticipate a lot of return from those technology investments. Those investments and the return thereof will come really in 2016 and 2017.

Okay. So at the end of the day you still -- and maybe this is for James -- you still feel confident, even though the economy is not going to help much here in the first quarter, and it may be second quarter before you regain momentum. Am I imagining that? Am I putting words in your mouth, or what?

I think that's right. I think the first quarter is going to be certainly the most difficult quarter of the year.

But back to what Jamie and both Darren have been talking about, with the investments that we're making in the Company, Thom, I really feel like fundamentally we are in the best position to move forward certainly since I've been back for over four years.

If we can get a little momentum with the economy, I really think we'll do well. But certainly the next 60 to 90 days will be difficult, I think.

Last question then I'll jump in the queue. 12 months from now where would you like that debt-to-EBITDA ratio to be? Or more importantly, where would your banks like it to be?

Yes, that's a good, tricky way of trying to get me to give you guidance, Thom. I appreciate that and I'll politely pass.

Is there a public market goal you'd like to share, the way you've shared some OR targets?

Just lower. The good news is, for us we don't have the maturity until the first quarter of 2019. So as much upheaval as there are in the credit markets right now, we love the fact that we locked in a five-year deal when we did. And we're going to continue to take advantage of that window as we focus on the operations.

Okay. Thank you, guys.

Art Hatfield, Raymond James.

Hey, afternoon, guys. I guess not surprisingly, pretty much most of my questions have been answered. But if I could just clarify on the bonus payment, while it's getting paid in a couple weeks, it was accrued in Q4 of 2015. Is that correct?

It was. As we went through the year, Art, we weren't for sure that we would hit that target OR, and we hadn't accrued it as we went into the fourth quarter. But as the year progressed, luckily -- and good for them -- they were able to keep performing and hit that target. So we accrued it in the fourth quarter.

My guess or my calculation on that, it was somewhere around $3 million. Is that close?

No, it's more than that. It's about $5.5 million.

Okay. $5.5 million? Okay.

Yes, and SCS was some of the margin headwind that you're looking at on a year-over-year basis.

Yes, absolutely. No, that's very helpful.

But I can tell you, Art, we think that's an investment that's going to pay dividends, and we're happy that we're able to do it.

Oh, no, I totally agree. It's helpful because we -- obviously me; I don't know about anybody else -- we're not modeling for it. So it's helpful for comparative purposes and really where you fell out in the quarter.

So when we -- you've made all these investments; and, Jamie, you had mentioned some of the headwinds related to some of the expenses. Obviously, those provide some benefit over time.

What is it -- and I know you don't want to provide guidance. But what is it necessary for you all in 2016 to be able to continue your path of EBITDA growth?

Yes, I think there's a couple of things, Art, that I would focus on as a W organization, which is continued yield improvement -- maybe not to the extent that we have experienced in the last four to six quarters. We've been very consistent that looking at 7% to 9% increases that we've seen at Freight, and probably 5% to 10% increases -- all ex-fuel, obviously -- at the Regional companies won't continue infinitum. But I do believe that continual yield improvement, as long as everyone remains rational, will certainly help.

The return of 2015's and maybe even to a lesser extent 2014's investments in technology and revenue equipment, we're seeing the revenue equipment yield probably about 0.6 plus or minus more miles per gallon than our existing fleet. We drive a billion miles a year; that tends to add up pretty rapidly.

Then the last two things I'd say is a return of the investment in our people and our productivity improvements that Darren spoke about earlier. So I'm not going to belabor those points, but to answer your question on 2016 and beyond, absolutely have to clip that coupon.

Then the last one, which I don't think we can underestimate, is the addition of some of these industry-best players in the space. The change of the people and the leadership and the way that affects our people and morale all the way across all the organizations I think has intangible benefits.

It's interesting in all that commentary that you didn't mention volume growth. Am I reading too much into that, that you didn't mention that? Basically that should be an obvious one?

Or is it something that really the opportunities on the expense side, better yield management, you can get some growth? Obviously you can't have volumes decline forever; but in the near term, that's the way to think about it?

I think it's a period of two different times, Art. The reason I say that is the next two quarters -- I think James said it earlier -- the next two quarters are going to be difficult. If you look at the PMI and the inventory-to-sales ratio, we all know that there is a little bit of overhang there.

There is actually an industrial recession or at least softening in the market right now that we're experiencing today that we don't think's going to change today or tomorrow. I think it's going to take a couple of quarters and maybe not even until the back half of 2017.

So we don't want to get over our skis and start thinking that there is going to be volume growth in the industry. We are not, right now, going to go out and start pricing to actually get some of that volume.

We've been very focused on getting the right freight at the right price, less focused on volume and market share, and 100% focused on EBITDA, cash flow generation, and shareholder value.

Great. Hey, thanks for your time this afternoon.

Rob Salmon, Deutsche Bank.

Hey, good afternoon, guys. James, in your prepared remarks you had talked to whether it was a target or an underlying expectation to improve profitability in 2016. Obviously the backdrop is a little bit softer, and I think Art is trying to get to this with his question earlier, is -- how confident are you guys that you can actually grow adjusted EBITDA, given the productivity benefits as well as the pricing in the tougher backdrop that we're currently in?

Well, certainly, Rob, that's a good question. We're going to stay very committed to providing good service for our customers. I think one of our competitors said you just can't stop giving good service in January and February, and we agree with that.

Certainly our service is better than it was. It's outstanding at the Regional companies, and it certainly has improved rather dramatically in YRC Freight, so we're proud of that.

As Jamie mentioned a minute ago, we're not going to overreact to tough conditions over the next 60, 90, 120 days, however long it takes to get us moving again from an economic standpoint. But we do think the second half of 2016 will be better. And we have the liquidity to weather whatever downturn that we're going to face, as Jamie mentioned in his prepared remarks.

But it's not like we're just going to sit here and hope that things get better. We're concentrating on productivities, on cost, on technology investments.

But we also have a sales team that's out there trying to leverage the value that we bring to the marketplace. We've got some good things in the pipeline.

So we're mindful of the fact that we can't shrink our business forever, and we're going to be very selectful and thoughtful as to how we go after business to be sure that it doesn't erode our yield.

So there's just not one thing that I can focus you on that says that our EBITDA will improve in 2016. But there's a multitude of things that we're confident in that will move that $333 million number forward.

Great. I appreciate that color. I guess I'm trying to dig into a couple of items to hopefully get a little bit more of a quantification of some of the productivity benefits. I think it was Darren, you had mentioned that about 25% of the internal miles are now being driven by one year or younger tractors.

How much of a savings are you realizing on those tractors? And what did that look like for all of 2015?

Well, actually, let me see if I can help with that a little bit. In terms of the tractors that we're adding -- and I'll let Darren jump into this, because I think a lot of this is going to have probably to do with the miles that we drive over the road -- is with the current age of our fleet less in calendar and more in miles, and with the new tractors that we're adding, I think I said earlier it's like a 0.6 mile per gallon improvement. It doesn't mean as much when diesel is at $2.20. But you know what, Rob? We're not going to pass on that; we're going to continue to clip that coupon.

But there's also a couple of other things that we're going to get from those new tractors. That is the piece on safety, so they'll have all the latest and greatest safety technologies. So we should get a small work comp and a bigger bodily injury pickup in a year or so as well.

Rob, this is Darren. On those fronts, YRC Freight had a nice improvement in safety last year. We expect to further drive that with the in-cab technology. But part of that safety improvement last year came from those new trucks that came online.

The good thing about all the new tractors we brought on is that completely refreshed that sleeper fleet that I mentioned earlier. So that 325 sleeper teams we've got, which runs the most miles in the company are all on new tractors.

Then along with that, from a maintenance standpoint we'll see that benefit all year long. That's certainly in my internal planning for 2016, is that we continue to benefit from all of those items.

The last thing I'll mention is that all the new equipment is under warranty, and that pays nice dividends for us.

I'd imagine a lower maintenance expense there as well. What was the empty mile reduction you guys were targeting for 2016?

I haven't commented on an empty mile reduction percentage.

Okay, all right, I'll hop back in.

Scott Group, Wolfe Research.

Hey, thanks; afternoon, guys. I think Rob asked the critical question; I'm not sure I understood your answer, James. Do you guys think you're going to grow EBITDA this year?

We're not going to give forward-looking guidance. Obviously our goal is to improve EBITDA every year.

So I was trying to explain to Rob that there's just not one thing that we're banking on that will improve our EBITDA; it's a multitude of things. But our expectation is not to go backwards.

Okay. I apologize if you already answered this, but what's the pricing renewals that you guys are seeing right now in the market?

In January we're seeing between 3% and 5% pretty routine.

I'll just comment, in the fourth quarter for YRC Freight that was 5.6% for the quarter.

It was 5.6% pricing renewals in the fourth quarter, and 3% to 4% in January?

3% to 5%.

3% to 5%? Sorry, 3% to 5% in January. Okay.

Yes, that is correct.

But what I would say in January is it's a very small size as we get the year started, off, we had a couple of big national accounts that were in the second year of their contract, so it's hard to really give a specific number in January at this range 3.5%, 6%.

Okay, that's helpful. Then just last thing. ABF talked about some headcount reductions that they are doing with dockworkers and some drivers. Do you have the flexibility to do that? And have you done any of that yet?

We do. At all of our companies, we have the flexibility to adjust and do so on a daily basis. We're not going to give percentages of the numbers we have laid off, but we certainly make those decisions every day on a dynamic and fluid basis.

Okay, all right. Thank you, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Tony Carreno for any closing remarks.

Thanks again to everyone for joining us today. Please feel free to contact me with any follow-up questions that you may have and this concludes our call. Operator, I'm turning the call back to you. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.