Yellow Corp (YELL) 2016 Q4 法說會逐字稿

Good afternoon and welcome to YRC Worldwide's fourth quarter 2016 earnings call. All participants will be in listen only mode. After today's presentation there will be a question and answer session. 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.

Thanks operator and good afternoon everyone. Welcome to YRC Worldwide's fourth quarter 2016 earnings conference call. James Welch, Chief Executive Officer of YRC Worldwide, Stephanie Fisher acting CFO of YRC Worldwide and Darren Hawkins, President of YRC Freight will provide comments on the fourth quarter and full year 2016 results and will be available during the question-and-answer portion of today's call.

Before we begin, I must remind you of 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 uncertainty and a number of risks. And that 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 these risk factors. For a full discussion of the risk factors that could cause our 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. These items are available on our website 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. Finally, in conjunction with today's earnings release, we've issued a presentation which will be referenced during the call. The presentation was filed in an 8-K along with the earnings release and is available on our website. So now turn the call over to James.

Thanks, Tony, and good afternoon everyone. I will make a few comments followed by Stephanie who will discuss our financial results and Darren who will provide an update on YRC Freight.

When reviewing the YRCW 2016 performance I would just say that much like some of you have forecasted, progress at YRCW has not and will not always be linear as we work to move the company profitably forward and that we can expect some bumps along the way. So while we did not make the progress that we had planned for in 2016, I would nevertheless categorize our overall results as steady.

The impact of the economy, and freight environment resulted in shipments being down on a year-over-year basis at YRC Freight and the regional carriers. With industrial shipments comprising approximately 50% to 60% of our revenue, we would have obviously liked to have seen growth in this part of the economy. Additionally, lower diesel prices throughout most of 2016 had a negative effect on our revenue and profitability.

We are proud of the fact that we exited 2016 with the lowest levels of debt YRCW has had since 2005. Our improved operating results over the past several years have allowed us to significantly lower our debt levels. In fact, we reduced our debt by more than $70 million in 2016 while at the same time increasing our CapEx, CapEx equivalent spend. Additionally, our operating income of $124.3 million is the best result in 10 years.

Are we where we want to be? The answer is a resounding no, however, I believe the company is well positioned to participate profitably as the economy strengthens. For example, in 2016 we installed In-Cab technology in our tractors and are achieving the desired result so far. We believe this bodes well for our future claims experience and this important part of our business.

We also enhanced our award-winning customer service by launching a new service offering and adding some capacity to our networks. YRC Freight introduce an accelerated service that fits between standard ground and time critical service. We also opened up several new terminals for the first time in recent years that will improve service in fast growing areas.

We believe our North American footprint which is comprised of an expansive network of more than 380 terminals across our four operating companies is a competitive advantage. We have the ability to move our customer shipments 30 miles or 3000 miles.

Next, we continue to reinvest in the company with a capital expenditure equivalent spend equal to 5.4% of revenue in 2016, a $13 million increase above amount spent in 2015. We are in the various stages of rolling out new solutions for linehaul with the Optym Technology and in P&D with the Quintiq Technology. We now have 82 dimensioners working daily to help us accurately price and cost shipments and prepare us for a density based pricing at some point.

Finally, during 2016 we took delivery of more than 700 tractors and 2,500 trailers. Since the beginning of 2015 we've taken delivery of more than 2,000 tractors and 4,000 trailers.

We continue to believe that the pricing environment in the LTL industry space remains rational, and we intend to stick with our strategy to improve price, freight mix and profitability. Equally important though, as in 2016 and going forward, our freight mix will vary and cost shifts in metrics like revenue per hundredweight as an example, the year over year weight per shipment at YRC Freight continues to rise throughout 2016 and that trend has continued so far in 2017. So length of haul, weight per shipment, revenue per shipment, revenue per hundredweight all have to be considered when working with freight mix.

Lastly our goals for 2017 include: number one, a continued focus to be the best in class in safety and customer service. Two, growing revenue with the right mix of volume and price increases. Three, improving profitability and operational efficiency with investments in linehaul and P&D that should ensure that we are moving our customer shipments as efficiently as possible. Four, strategically continue to reinvest in YRC while tightly managing our cost structures. We believe our people in the networks at YRC Freight, Holland, Reddaway and New Penn, combined with our physical assets and investments in Generation-Skipping technology provide a platform for continued improvement and long-term growth.

With these comments, I will now turn the call over to Stephanie for a review of our financial results.

Thanks James, and good afternoon everyone. For the fourth quarter 2016 we reported consolidated revenue of $1.15 billion, which is in line with the $1.14 billion reported in the fourth quarter of 2015. Consolidated operating income was $14.9 million, including the $3.4 million gain on property disposals compared to a $15.3 million loss in the same period a year ago which included a nonunion pension settlement charge of $28.7 million and a $400,000 loss on property disposals.

Our fourth quarter 2016 adjusted EBITDA was $67.7 million compared to $66 million in the same period in 2015. The consolidated adjusted EBITDA margin was 5% this quarter, compared to 5.8% for the fourth quarter 2015.

For the full year 2016 we reported consolidated revenue of $4.7 billion, down from the $4.83 billion reported in 2015 with a decrease primarily driven by a decline in fuel surcharge revenue and softer volumes. For context, the price of diesel was approximately 15% lower in 2016 versus 2015.

Consolidated operating income for the full year 2016 was $124.3 million, compared to $93 million in 2015. Our full year 2016 adjusted EBITDA was $297.5 million with a margin of 6.3%. This compares to full year 2015 adjusted EBITDA of $333.3 million and a margin of 6.9%. Finally, net income for 2016 was $21.5 million compared to $700,000 in 2015.

Turning to the financial results by segment. In fourth quarter 2016 YRC Freight reported an operating loss that was nearly breakeven compared to a loss of $21.4 million in 2015. Adjusted EBITDA for the quarter was $20.8 million for a margin of 2.8% compared to $36.8 million and a margin of 5% in the same period last year. For full year 2016, YRC Freight's operating income was $53.2 million compared to $18 million in 2015. Adjusted EBITDA was $140.1 million or a margin of 4.7% compared to $167.2 million and a margin of 5.5% last year.

Moving to the regional carriers, they reported operating incomes of $16.4 million for the fourth quarter 2016, an improvement of $6.9 million. Adjusted EBITDA also improved to $35.2 million and a margin of 8.4% compared to $30.2 million and margin of 7.4% in fourth quarter 2015. For full year 2016 the regional segment reported operating income at $81.3 million compared to $85.4 million in 2015. Adjusted EBITDA was $156.5 million for a margin of 9% compared to $165.9 million and a margin of 9.3% last year.

The presentation that Tony mentioned in our earnings release included most of our key stats for the fourth quarter and full year 2016. Therefore, I will keep the next section brief and focus on just a few of the fourth quarter stats. First, at YRC Freight fourth quarter 2016 year-over-year tonnage per day was up 1.9% which is the first positive quarterly result since 2014. This was comprised of year-over-year increases up 0.4% in October, 2.9% in November, and 2.4% in December.

In January YRC Freight's year-over-year tonnage per day was up approximately 4.3%. For fourth quarter 2016 revenue per shipment including fuel surcharge was up 0.2% and up 0.5% when excluding fuel surcharge compared to fourth quarter 2015. Revenue per hundredweight including fuel surcharge decreased by 1.8% but revenue per hundredweight excluding fuel surcharge was down 1.5% when compared to the same quarter last year.

Turning to the stats for the regional segments, fourth quarter 2016 tonnage per day was flat compared to fourth quarter 2015. The year-over-year changes on a monthly basis consisted of a decrease of 3.3% in October, offset by increases of 0.9% in November and 2.8% in December. Through late January the regional segments year-over-year tonnage per day was up approximately 1.1%. For fourth quarter 2016 revenue per shipment including fuel surcharge was up 1% and up 0.9% when excluding fuel surcharge compared to fourth quarter 2015. Revenue per hundredweight including fuel surcharge increased 0.4% while revenue per hundredweight excluding fuel surcharge was up 0.3% when compared to last year.

In terms of liquidity, our cash and cash equivalents and managed accessibility under the ABL facility at December 31, 2016 was $181.1 million compared to $209.3 million a year ago.

Finally, regarding our term loan credit agreement. In the fourth quarter 2016 we utilized our liquidity position to pay down $40.5 million of the term loan. As you heard from James, we were able to do this as a result of our improved cash flow from operations and the restricted cash that was freed up as a result of the amendment to our ABL facility.

We ended the fourth quarter 2016 with gross debt to adjusted EBITDA of 3.4 times against a maximum credit facility covenant of 3.5 times. With the covenant tightening another quarter turn to 3.25 times in the first quarter 2017, we believed it was prudent to seek an amendment through the maturity of the term loan so we could continue focusing on our operational improvement. The increase in the quarterly total leverage covenant ranges from 0.6X to 0.25X above the previous levels. You can find the amended maximum facility covenant by quarter on slide 4 the presentation that we filed earlier today. I'd like to thank the lending community for its support and for acknowledging the progress that we made thus far.

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

Thanks, Stephanie. And good afternoon everyone.

Regarding YRC Freight's Q4 results, we were primarily impacted by the following. First, as Stephanie mentioned, in Q4 2016 YRC Freight reported an increase in year-over-year tonnage per day for the first time in two years with the favorable results continuing into January. However, a 2% increase in year-over-year weight per shipment combined with a decrease in average length of haul more than offset price increases during Q4 of 2016. And led to an unfavorable variance of 1.5% on our revenue per hundredweight excluding fuel surcharge.

The increase in weight per shipment and decrease in length of haul was largely due to a small number of new customers with freight characteristics that resulted in below average revenue per hundredweight for us. And those trends were amplified with the Q4 peak retail shipping.

During the quarter, we were also dealing with strong year-over-year comps where we had a 4.2% increase in revenue per hundredweight excluding fuel surcharge in Q4 2015 on top of a 7.3% increase in Q4 2014. The revenue per hundredweight metric is not the same as price, and is only loosely correlated, as spread characteristics and freight mix trends impact that metric.

YRC Freight continues to view the LTL pricing environment as stable. Adjusted for weight per shipment and length of haul our revenue per hundredweight excluding fuel surcharge was flat year over year. As I mentioned in my opening, we're seeing positive momentum on the volume side which should put us in a position to increase rates at a steady pace over the next several quarters. We remain committed to our strategy of price improvement while balancing volume and yield.

Second, with mix adjusted yield being relatively flat year-over-year, and not providing any earnings lift, we did not achieve enough cost savings in other areas of our operation to offset our contractual wage and benefit increases. These annual increases were the largest single driver of our year-over-year decline in Q4 adjusted EBITDA.

Third, in addition to the contractual wage and benefit increases, and unusually high quarter for cargo claims experience contributed to our year-over-year decline. While Q4 was by far our best quarter for cargo claims expense in 2015, it was our worst quarter for cargo claims expense in 2016. For the full year 2016 versus 2015 our cargo claims experience and expense was not a significant issue for us. But the lumpiness by quarter did create a variance in Q4. Cargo claims is something that we will continue to focus on and expect to mitigate quickly.

Finally, in Q4 2016 labor productivities and load average overall were flat year-over-year from an EBITDA perspective. However, we did run a higher percentage of our linehaul miles on the rail in Q4 2016 versus Q4 2015, which increased our purchased transportation expense but helps mitigate incremental wage and benefits expense.

As a reminder, per our MOU agreement with the IBT we can use purchased transportation for up to 26% of our total miles in a year. In 2015 we used more of those miles earlier in the year than in 2016. The increased cost during the fourth quarter were partially offset by lower liability claims expense and workers compensation expense. We believe this is a result from our continued focus on safety.

As we look ahead, the 2017 strategic objectives for YRC Freight include: first, safety. In-Cab technology was the highlight of 2016 and so far has brought the improvement in accident reduction that we anticipated. This technology is now the standard for how YRC Freight approaches road safety, and we believe it will continue to pay safety dividends in 2017 along with our unwavering safety training commitment for all employees.

Second, service. Just as In-Cab technology was the safety highlight, the launch of Accelerated was the service highlight. It's already our second largest service by volume and along with standard ground, will be the core focus of our company in 2017.

Third, is efficiency and quality. As referenced on the Q3 2016 earnings call, YRC Freight is targeting our two largest cost buckets in the company. Linehaul and city pickup and delivery operations through changed management and technology investments. These multi year projects are on track, and we expect the benefits to ramp up throughout 2017. Including the linehaul project around Q2 and the pickup and delivery project later in the year.

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 continued to move us in the right direction in 2016 and for the execution focus on 2017. Thanks for your time this afternoon, we would now be happy to answer any questions that you may have.

(Operator Instructions)

First question from David Ross, with Stifel, go ahead.

Good afternoon, everyone.

Hi, David.

Jim, could you just talk about maybe the consolidation of the Holland facilities into New Penn and YRC, I read about somewhere last week and also streamlining some of the middle-management structure in terms of, I guess continued to match freight volumes with labor and everything?

Sure, be happy to. Number one, we have not consolidated anything from a physical network structure into any one of the other companies. All four companies today remain independent. What we did do, however, was take the opportunity to realize the improvements that we have had from process improvements and technology to right size our business which we consider kind of a normal course of business.

Certainly the adjustments that we made were certainly carefully analyzed and we used a consistent methodology across all four operating companies that really centered on span of control, number of direct reports and things like that. So we certainly took all that into consideration. We only made any sort of decision once we knew that we certainly could from a cost and service benefit to help our business out.

But there's really no network integration at all. There could be some facilities where we have the capacity to share, and we will be looking at some things like that. But really just a normal right sizing of the business which we were happy to be able to do from the improvements that we made with our technology and processes.

Okay, so it's not as if you're shutting down some facilities in Holland to put that freight into New Penn and YRC Freight?

Not at all. Nothing can be further from the truth. Nothing at all. I want to be real clear. Nothing is being done to change the physical structure of the networks Holland, New Penn, Reddaway, YRC Freight all operated independently. So no, whoever wrote that article didn't quite have that right.

Okay. And then, as for some overhead reduction, any quantification of potential benefits here in 2017? Maybe a tailwind at YRC Freight for 5 million, 8 million, 10 million?

We certainly think we will have some benefit, but we don't think the overall dollars will be material.

Okay, and then, Stephanie, I guess I didn't catch you when you were speaking earlier about YRC Freight tonnage per day trends. Can you just give October, November again? I got December and January.

Yes, sure. 0.4% in October and 2.9% in November.

Okay, so doing pretty well as we move through the quarter and then accelerated up over 4% in January. Does that mean the shipment count is also now positive? Or is that just increasing weight per shipment even further?

It's a combination of both items. We've continued, the other thing that you should consider is, easier comps in January. So that's also contributing to that growth there in January.

And then maybe it's the accelerator product, but is there anything else separating YRC Freight from regional in terms of why it looks like YRC Freight has done a little bit better volume trend than regional is right now?

I don't think there's anything in particular that's going on. If you look, and I wont give February numbers because it's obviously too early in the month, the regionals have kind of closed the gap there with YRC Freight. So there was nothing in particular going on at either one of the reporting segments that are different.

And then, last question about YRC Freight. Darren, you mentioned that there's a decrease in average length of haul. What was that decrease year over year, either in percentage terms or absolute terms?

The absolute Q4 2016 number was 1,267 miles.

And a year ago it was 1,290, 13?

1,274 from a year ago.

Okay. Thank you very much.

Thanks, David.

The next question comes from Scott Group, Wolfe Research.

Thanks, afternoon, guys. Wanted to just follow up on the pricing trends at YRC Freight. So I'm still struggling to understand the disconnect between the 3% to 4% contract renewals you guys have been talking about and now kind of down on a reported basis, flat on a mixed adjusted basis. Why is there such a big spread here?

Scott, this is Darren. I think from that aspect on take for instance 3% on contractual increases, attainment numbers versus pure price increase when we true that up over a period of time, then that's certainly adjusted upward or downward based on the amount of revenues you secure from the customer. Based on the increase that you took and the guidance that you got from the customer, so those numbers to move but they stay pretty consistent at YRC Freight from a pure price increase standpoint.

How that correlates when we take into account length of haul, weight per shipment, revenue per shipment, revenue per hundredweight, all of those items together and actually transferring when you price for profit and getting that to the bottom line, I think would be the difference in a 3% to 4% contractual increase with the customer versus an actual pure price increase from a yield standpoint.

So maybe I guess can you give us the contract pricing renewals for the fourth quarter, if you have them, and then what's your view of what pricing is right now, the way that you look at it, if you don't think revenue per hundredweight is the right way to look at it?

For the fourth quarter YRC Freight 3%, on the contract renewals. From that aspect, our weight per shipment trends at YRC Freight I don't certainly necessarily say that's a bad thing. I think from productivities and many other measurements that we got, the weight per shipment moving in a positive direction, unless you are taking some specific action to cause it, I mentioned a few customers that are driving that, but also when it's going up it's a good economic indicator as well.

So I think my confidence from a YRC Freight aspect and a pricing piece comes from the volume that we are seeing and also knowing that I've got some confidence in our negotiations moving forward in Q1 and also based on what I've seen our competitors, the ones that have reported so far, it gives me confidence that from a pricing aspect we can have an aggressive stance over the next couple of quarters.

And I just wanted to stay on pricing for a second because I think there's a lot of questions about it. Are you seeing that -- you're saying that you're realizing less of the contract renewal increase, is that spread versus realized versus contract? Is that widening now meaning is that a sign that the pricing environment is getting tougher?

I don't see the pricing environment getting tougher. I see some very specific things happening at YRC Freight from a length of haul and weight per shipment surrounding a few customers and also some new opportunity that we took on that's a little different model than what we normally do. So I wouldn't read too much into that with the idea that I am in a volume position now.

This has been a multi-year process at YRC Freight and correcting the mix that this Company's had, I think we are a long way down the road in a positive way on that. So it gives me confidence about what I see in front of me from a pricing environment. And as I said in the script, the market appears very stable to me.

Scott, this is James. Just to tack on to that. From a regional perspective, there is not a huge amount of difference between really what YRC Freight has been doing and what the regionals are from a revenue per hundredweight, at least over the last several quarters. That gap is kind of closed and the regionals revenue per shipment continues to go up as well.

So I think that's the hard part that the industry really has to worry about when managing your freight mixes. At the end of the day, we sell space on trailers so what can we do to maximize our revenue on trailers. And we don't look at just one metric, and but I'm like Darren, I feel good about the volume that we are seeing come out of the gate and we will certainly be sure that our pricing activities reflect that moving forward.

Okay, and just last things on this pricing discussion, I know you don't usually give us current quarter pricing, but any way you are willing to share January rev per hundredweight? And if the new business is coming online at lower revenue per hundredweight, does that mean it's coming online at lower margins or not necessarily?

Scott, I can't share the yield numbers for January. We will address the second part of the question on new business. I see a consistency in the business and also how we price for that business. We talked several calls ago about pricing technology that we use. It certainly comes into play on this weight-per-shipment, length-of-haul discussion as well.

But as far as having to be aggressive to get volume, that's not the case. But I will certainly say that from a pure price standpoint we didn't cover the contractual wage and benefit increases in Q4, and I certainly can't allow that to happen. So we have to take a stronger position on pure price increase moving forward.

Okay, thank you, guys.

Thanks, Scott.

The next question come from Brad Delco, Stephens.

Good afternoon, gentlemen. Stephanie. Darren, the questions for you is maybe a little follow up on the pricing discussion as well. How is the GRI performing, that was roughly 5% that went into effect early September, is that correct?

Yes. And from a measurement standpoint, we've got good tools that tell us what happens with that. And even though it's not a majority of our business the general rate increase impacts, we did have a high level of attainment on our general rate increase. So that certainly was a positive contributor from a price standpoint.

And that's also taking into account in your commentary that mix adjusted revenue per hundredweight was flat, so really excluding GRI, some that business could have actually been slightly down?

Yes.

And then, I guess I was also a little surprised to see the improvement in weight per shipment, but I think you commented that labor productivity and load averages were flat on a year-over-year basis. Is that a surprise, and what maybe is the cause for that given the investment in some of this technology?

I actually like the way you are thinking about that because I can give some more color there. As you know, in Q4 2015 we had mild weather, and there wasn't really weather impact in any of the LTL networks that publicly report. In December of this past quarter, we had significant weather event that started in the West and moved across the country to the East. And it lasted for several days.

It impacted eight of my largest distribution centers in the middle of the country, and also there was a polar vortex along with that weather event. So we were not only dealing with the offset of ice and snow, but also extreme cold temperature. That got into my dock productivity as the metric that underperformed and actually the other metrics were up, and so when you put all those together, then they were flat. But I hope that gives you some color on weight per shipment, I agree with you, it's a positive for productivity. That's one thing I like about the trend that's going on at YRC Freight.

Brad, this is James. You can go back really to 2013 and move it forward, if you're just looking in the fourth quarter of that time frame, you would see YRC Freight either in the first, second or third slot with all publicly reported LTL companies from a weight per shipment growth.

So you might recall back in 2012 or 2013, we eliminated a lot of 300 pound and less shipments, and that's really been a focus of the Company to get a higher weight per shipment and we've really done well there. And look at revenue per shipment as much as anything when analyzing our business.

Great, that's good color. James, this is probably a question for you, on the regional results, I don't want to make light of the fact that these were a lot better than our expectations, particularly because I guess there was a fear that you were still dealing with some of the driver turnover issues.

Where do we stand there, and is that can we assume that behind us now given the improved results here, at least relative to what I mean many were expecting with that issue in the third quarter?

We said in the third quarter that it would take us a couple of quarters to get righted, and we certainly made progress there. Not to the point where we want, but certainly made progress and were able to be wiser with our use of purchase transportation. That being said, with volume starting off as it has in 2017, I suspect that it will be a lingering issue, not only at the company that we were having the biggest issue with, but across all of our networks.

There are certain locations that we look for drivers 7 days a week, 24 hours a day. And I don't think that that's going to change unless the economy does a flip-flop on us. We're anticipating a year where we will have to work hard at working our drivers through either our in-house driver training program, being associated with driver schools, military recruiting, job fairs, you name it, we're hard after it. But we did make some progress there and that did make a difference.

And I guess nothing is being contemplated or trying to address some of those issues with your current labor contract and starting wages?

I wouldn't say there's anything formally going on, but there are some considerations that we certainly would like to talk about.

Okay. And then I may have missed this, this is my final question, has there been any sort of guidance you've given on the capital budget this year, operating leases, capital leases, et cetera, cash, CapEx you expect to spend?

Brad, it is Stephanie. We haven't given any guidance thus far for 2017.

Okay. That's it for me. Thank you so much for the time.

Thanks, Brad.

Amit Mehrotra with Deutsche Bank.

It's Sheldon Clark for Amit.

How's it going?

Good. You mentioned a couple of different projects, the line haul project in Q2, and P&D project later in the year. Can you just help me better understand the cadence of some of the other cost issues you are implementing? And do you have any sort of incremental margin assumptions baked into your longer-term OR targets?

Certainly. This is Darren. We don't go out into detail as far as dollars on those pieces, but it's an iteration of several pieces that all work together. So when you think about line haul technology, it's really around planning and execution.

So we've got [Optum], [Siznet]. We've got an upgraded line haul driver management system. We've got some new wireless infrastructure in-dock tablet technology, that also works with that. We've got upgraded forklift technology. On the P&D side, the pick up and delivery side, from the Quintex standpoint that is around our route optimization, so all those working together.

And then also any time we talk about efficiency at YRC Freight and this is also true in the fourth quarter. We had another really good quarter of increased fuel miles per gallon. So from a fuel efficiency standpoint, we also anticipate seeing nice gains in 2017 in all those areas. One great thing about where our Company has been, there's certainly great opportunities still in front of us.

This is James. I might add that the technology projects are multi-year faceted types of projects. I think the Quintix is just finally in its initial two or three pilot phase rollout, and that will pick up pace as the year goes along. But as Darren said, we don't give guidance, but we do anticipate and expect benefits from the technology investments as we move forward.

Certainly when you look at the size of the cost buckets that those -- the pickup and delivery and the line haul side, outside of labor, those are your two largest cost buckets in the Company.

Okay, that's helpful. And just like if volume tonnage and pricing trends stay consistent, are there costs associated with these projects? And if you kind of see similar I guess trends what you saw in Q4, would you still expect margin improvement in 2017 on the back of the initiatives?

This is James. Certainly volume is critical for our business, especially with these networks. So any time that we see volume picking up and we can leverage price against that and continue to work that angle, that's always good for us.

Secondly, density improves our efficiencies. The right kind of business that we can attract that handles well for us and helps us with load average and space on trailers and things like that, that's all good for us. So density, I think if we see the economy continue to move on, will be our friend in 2017 from several different angles.

Okay. Just taking a step back and broader question on the industry, what is your view on the impact of on ELDs on LTL space and what type of capacity do you guys have to handle any sort of spillover effect from the truckload space?

I think it's minimal. This is James. I think it's minimal in the LTL space. We are currently in compliance because the way our run our network, our drivers are never put in a situation where they would violate the law. And we will have our ELDs in place by the December mandate.

There's a lot of speculation as to what it will do to the overall capacity, whether it's truckload or LTL. I was just at a conference the week before last, and I will tell you the optimism in the room was a much different than it's been the last two or three years, and it was both a carrier and a customer kind of a conference. So I found that encouraging.

But I think it's too early. It remains to be seen what impact it will have. I suspect if it has any impact, it will be on the truckload side. Any time that there's a capacity issue in truckload, that's not a bad thing for LTL because some of those multi-stop truckload shipments filter back down into the LTL networks.

From a capacity standpoint, I can tell you that we have capacity at all four of our operating companies. Some companies have a varying degree of difference between capacity that's available. But we certainly think that we can handle a surge if there is one. And we will just have to see how it plays out.

Okay, great, that's helpful. And then just lastly, a little housekeeping. Do you have operating days by quarter for 2017?

Hold on just a second.

Sheldon, this is Tony. I have them for you. So freight, first quarter it's 64, second quarter is 63.5, 63 1/2 I'm sorry, Q3 63, Q4 61 1/2. And then on the regionals in Q1, it's 64, Q2 it's 63 1/2, Q3 62 1/2, and Q4 61 1/2.

Great, thanks a lot. That's it for me.

Thanks.

Scott Group, Wolfe Research.

Hey, guys thanks for a couple follow-ups. So just going back to the pricing volume discussion. Just at a high level, James, I think back year and a half ago, you were very clear that we need to get a lot of price and we're going to improve the mix of the business and get price.

Right.

As you think about 2017, is the goal about growing volume or is the goal about getting more price?

It's an absolute combination of both. But we have worked too hard to get our mix of freight moving in the right direction and we want to continue to take advantage of that. But we'd also like to build the right kind of volume.

So again, when we have a little more volume to work with, that will give us an opportunity to be a little more front and center with price would be the best way that I would describe it. It's not an either/or, it's both. And again, if you just go back and look at where YRC Freight has been from both a revenue per hundredweight standpoint and a weight point, we definitely made the progress that we wanted to with hundredweight per shipment. And some quarters we've made nice progress with our revenue per hundredweight, revenue per shipment, things like that.

But it's really a balancing act, Scott. Between the different metrics that we've talked about length of haul, weight per shipment, revenue per hundredweight, revenue per shipment, freight considerations, the loadability of freight. Is it a live appointment trap freight; how far is it from a terminal; is it in a balanced situation; are you trying to fill in empty. There's so many things that go into freight mix. But I can tell you that price is something that we talk about every day and we're not going to let go of that.

Okay. Makes sense. And then, just in terms of fuel, does that turn into a year-over-year tailwind for EBITDA right away, in the first quarter, as diesel prices have turned higher year over year, or is there any kind of lag there? Do we need to think about fuel any differently going forward than we have in the past, given some of the changes in your fuel surcharges over the past 16 months?

It's a tailwind right now, but it's not much. It's blowing at about 2 miles an hour, not 20 miles an hour. There's just a slight tailwind occurring. I have read all kinds of forecasts about fuel, and then the next week it changes. So it's really hard for me to put a bead on where fuel prices are headed, but I certainly hope that it will be an easier comp than it was in 2016 and anticipate that happening. But it's -- I think by March, we'll have a little better feel for how the year is progressing, but so far a little bit of a tailwind, not much.

Okay, thank you, guys. Appreciate it.

Thanks, Scott.

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

Thanks, Operator. So in closing, despite some external factors that impacted the Company in 2016, our team is very focused on the things that we can have an impact on. And it's a bit too early to see how 2017 will play out for the transportation industry as a whole, but at our Company, we are optimistic about the long-term prospects. I can tell you we have some the best and most experienced freight employees and I certainly appreciate their efforts.

So thanks again to everyone for joining us. Please contact Tony if you have any follow-up questions. This concludes our call. Appreciate you taking the time to be with us, and I will turn the call back to the operator.

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