Yellow Corp (YELL) 2017 Q1 法說會逐字稿

Good afternoon, and welcome to YRC Worldwide's First Quarter 2017 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.

Thanks, operator, and good afternoon, everyone. Welcome to YRC Worldwide's First Quarter 2017 Earnings Conference Call.

Joining us on the call today are James Welch, Chief Executive Officer of YRC Worldwide; Stephanie Fisher, acting CFO of YRC Worldwide; and Darren Hawkins, President of YRC Freight.

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 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 the 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. 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.

In conjunction with today's earnings release, we have 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. The format of this afternoon's call will include an overview of the first quarter from James, followed by Stephanie, who will discuss our financial results. Darren will conclude the prepared comments with an update on YRC Freight, followed by a question-and-answer session.

I'll now turn the call over to James.

Thanks, Tony, and good afternoon, everyone. Although we are somewhat disappointed in Q1 consolidated results, we firmly believe the fundamentals of our business remain intact and are in fact improving, which we expect to result in positive financial performance moving forward based on the investments that we've made in technology and our ability to streamline our back office support structure. The sluggish start to 2017 was expected, as evidenced by the amendment to the term loan credit agreement that was completed during the first quarter. However, we did see monthly results improve sequentially during the quarter to the point where March adjusted EBITDA and operating income were better than March of 2016. And our improving performance actually allowed us to achieve our internal first quarter plan. We expect to see continued improvement as we move forward in 2017.

Despite challenging winter weather in the Pacific Northwest and the Northeast, our regional carriers reported results that were fairly consistent with a year ago, with operating income flat and adjusted EBITDA down by about $4 million. Year-over-year tonnage per day was up and revenue per hundredweight, excluding fuel surcharge, was slightly positive. YRC Freight's performance in the first quarter was impacted by similar trends it experienced in the fourth quarter of 2016. Year-over-year tonnage per day was up, but it was more than offset by a decline in revenue per hundredweight, excluding fuel surcharge. Darren will provide additional color when he discusses results in a minute.

Economic indicators point to improving industrial production that we believe will ultimately translate to continued year-over-year increases in volume. It is also important that we continue to drive action in areas where we can improve operational efficiencies that contribute to improved financial results. To that point, we are focused on improving adjusted EBITDA and operating cash flow, reinvesting back into the company and improving our capital structure.

The company has now advanced to a point where we're able to streamline and rightsize our management and other nonunion workforce. As a result, during the first quarter, we took steps to extract cost out of the business. We were judicious in our approach, considering factors such as span of control of our employees while looking for opportunities to combine departments where it made the most sense. We went through this process with the intent to remain focused on being best-in-class in safety and customer service while maintaining our platform for continued improvement and long-term growth.

In addition to savings from eliminating approximately 180 positions, we reduced the utilization of external professional services and increased collaboration across all 4 operating companies, among other changes.

Collaboration between YRC Freight, Holland, Reddaway and New Penn are expected to drive continuous improvement in the areas of procurement, marketing, human resources and customer service. Although let me be very clear here. We like the current structure of 1 national and 3 regional carriers and absolutely have no plans to combine the operating companies.

In total, we expect the efficiency savings to be approximately $25 million over the next year. We view this process as a part of a normal course of business, and we'll continue to look for opportunities to tightly manage cost and make changes to improve the company. As a reminder, these savings are separate from the efficiencies and improved fleet utilization that we expect from the new Optym linehaul technology and the Quintiq pickup and delivery technology once they are fully implemented at YRC Freight.

So in closing, we believe the pricing environment in the LTL industry remains rational, we intend to stick with our strategy to improve price, freight mix and profitability, and our goal in 2017 is to exceed our 2016 adjusted EBITDA while meeting our customers' needs.

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

Thanks, James, and good afternoon, everyone.

For the first quarter 2017, the company reported consolidated revenue of $1.17 billion, up from the $1.12 billion reported in the first quarter 2016. The improvement was primarily attributed to an increase in fuel surcharge revenue and higher volume, partially offset by a decline in revenue per hundredweight excluding fuel surcharge at YRC Freight.

In terms of consolidated operating results, we reported an operating loss of $3 million in the first quarter 2017 compared to operating income of $13.4 million in the first quarter 2016. And as you heard from James, first quarter 2017 adjusted EBITDA was $43.2 million, which is a decrease of $19.7 million from the same period in 2016. The consolidated adjusted EBITDA margin was 3.7% compared to 5.6% in the first quarter 2016.

Turning to the financial results by segment. In the first quarter 2017, YRC Freight reported an operating loss of $10.5 million compared to operating income of $4.1 million in 2016. Adjusted EBITDA for the quarter was $14.9 million for a margin of 2% compared to $30.1 million and a margin of 4.3% in the same period last year.

Moving to the regional carriers. They reported operating income of $12.2 million for the first quarter 2017, which is in line with the $12.4 million in the first quarter 2016. First quarter adjusted EBITDA was $29.4 million with a margin of 6.7% compared to $33.4 million and a margin of 7.9% in the first quarter 2016.

As for the stats, all of our key stats for the first quarter 2017 are included in our earnings release and the presentation we filed earlier today, so I'll focus on just a few of the more significant ones.

At YRC Freight, the first quarter 2017 year-over-year tonnage per day was up 3.4%. This was comprised of year-over-year increases of 4.3% in January, 3.5% in February and 2.5% in March. In April, YRC Freight's year-over-year tonnage per day was up approximately 6.2%.

For the first quarter 2017, year-over-year revenue per shipment including fuel surcharge was up 1.8% and down 0.4% when excluding fuel surcharge. Revenue per hundredweight including fuel surcharge was up 0.5% on a year-over-year basis, while revenue per hundredweight excluding fuel surcharge was down by 1.7% when compared to the same quarter last year.

Turning to the stats for the regional carriers. The first quarter 2017 year-over-year tonnage per day was up 2.1%. This was comprised of year-over-year increases of 2.7% in January, 2.3% in February and 1.3% in March. In April, the regional segments' year-over-year tonnage per day was up approximately 1.4%.

For the first quarter 2017, year-over-year revenue per shipment including fuel surcharge was up 4.4% and up 2% when excluding fuel surcharge compared to the first quarter 2016. Year-over-year revenue per hundredweight including fuel surcharge increased 2.5%, while revenue per hundredweight excluding fuel surcharge was up 0.2% when compared to last year.

In terms of liquidity, our cash and cash equivalents and managed accessibility under the ABL facility at March 31, 2017 was $202 million, reflecting an increase of more than $20 million from December 31, 2016.

Regarding our term loan credit agreement. Through March 2017, our last 12 months adjusted EBITDA was $277.8 million and our debt obligations totaled just over $1 billion, which is the company's lowest in 12 years. The resulted funded debt to adjusted EBITDA ratio was 3.62x as of the end of the first quarter 2017 compared to a maximum credit facility covenant of 3.85x. The maximum covenant ratio will remain at 3.85x for second quarter 2017 before stepping down to 3.75x in the third quarter of 2017 and 3.5x in fourth quarter 2017.

Finally, I'm encouraged by the trends we saw in March and April. And I'm confident that we should continue to see positive results from moving forward based on the investments we've made in technology and our ability to streamline our support structure.

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

Thanks, Stephanie, and good afternoon, everyone. Similar to YRC Freight's Q4 2016 results, without year-over-year yield growth, we did not achieve the revenue and earnings lift in Q1 2017 to offset annual contractual wage and benefit increases. However, I am confident that we have taken and are taking the necessary actions to increase yield, which was the primary cause of our decline in adjusted EBITDA. The yield actions include, but are not limited to, pulling 350 customer negotiations forward into Q1 that were not due until later in the year and completed those early due to a weak profit contribution. We also completed the normal over 1,000 Q1 contract negotiations on time and with the targeted increased amounts needed. In addition, we are increasing transactional rates with 3PLs, spot pricing and web sales. Collectively, we expect our efforts to drive better year-over-year revenue per hundredweight excluding fuel surcharge results with sequential improvement in Q2 and that turn positive by Q3 2017.

On our last earnings call, I had mentioned a small number of new customers that were unfavorably impacting our yield metrics and, ultimately, our profitability as a result of their large number of shipments. We have been working with them to mitigate this trend and their new agreements went into place May 1. Our normal contract renewals occurred throughout the year, and they typically are not simple price increases. They involve complex negotiations and agreements on thousands of origin and destination ZIP code payers for many of our customers. Due to this process, as most of you know, the improvement in yield never moves as fast as we would like, but the pure price increase from Q1 2017 contract negotiations averaged over 3%.

Obviously, the publicly reported yield metrics did not reflect those higher price negotiations. This occurs for various reasons including continued growth in average weight per shipment and shorter length of haul, both of which depress revenue per hundredweight. Looking back over the last few years, we achieved meaningful yield improvements from 2014 through 2016 but also sustained noteworthy volume declines. Our focus in the near-term is on balancing volume and yield and properly leveraging our portfolio of services, including our accelerated offering, which has been well received in the marketplace and is our second largest service by volume.

YRC Freight has made significant investments in the customer experience over the last few years and strengthened the network with reliable and consistent service that enhance confidence from our customers, and we are on track with our linehaul and pickup and delivery upgrades for 2017.

In closing, as we saw our business improve through Q1 and in April, I have become more confident in the actions that we have taken and are taking should result in improved 2017 adjusted EBITDA compared to 2016. I appreciate that the employees of YRC Freight delivered good service and safety in Q1 even through significant and costly weather events.

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

(Operator Instructions) And the first question comes from Brad Delco of Stephens.

Well, it seems like you guys are definitely being straightforward with us and sharing with us as much as you can about yields. It does seem that, that was the challenge in the quarter. I'm going to fire off just a couple of questions real quick. James, the 180 folks, that was a move that occurred in the first quarter, is that correct?

It was occurring throughout the first quarter. In fact, Brad, when we had our fourth quarter call, we'd referred to the process that we were going through, and we didn't put a number on it at that time simply because we were continuing with the process of developing and hitting the $25 million number that I challenged the operating companies to come up with. So that number really came finalized after the first quarter.

Okay. So we'll see the benefit of that starting in 2Q. Will there be any corresponding severance or was there severance in the first quarter related to that?

There was severance and that's already been accounted for.

Okay. And then, I think, you mentioned expectations for positive results going forward. I think that was mentioned multiple times in the call or in your prepared comments. Does that mean you expect positive in terms of year-over-year to be better? Or I'm just wanting to make sure that I'm not or the rest of us are not taking that out of context.

Sure. I'm confident that, that is going to happen. Obviously, I said that we exceeded our first quarter plan, which was important to us. We knew it was going to be a tough quarter just based on the trends that we saw in 2016 fourth quarter, and we set our plan accordingly and we feel good about the rest of the year. And our goal is to exceed last year's 2016 adjusted EBITDA number.

Yes, so that's goal, but it's actually guidance, right? We can take that as guidance?

Not really.

And then, last one for me is, if it's okay. Darren, I think you said that now your accelerated services is your second largest service in Freight. I would imagine that, that would have a positive yield contribution. So are yields actually looking worse? Or are they looking worse if you excluded the benefit of how much growth you're seeing in your accelerated service?

Yes, even -- the accelerated is our version of faster LTL even though it's a non-guaranteed service, so it does carry a higher margin with it. That sequential improvement that I referred to from a yield perspective in Q2 and that it would turn positive in Q3 is mainly related to the renegotiations that we had, and that we pulled forward and also those handful of customers that I mentioned on the last call that are now in place. Those negotiations took a little longer than we anticipated, but they're all in play as well. So that is where my confidence came from, Brad.

And the next question comes from David Ross of Stifel.

Darren, just to start you off with an easy one. You said sounds like the haul went down year-over-year at YRC Freight. Can you give us those numbers?

Yes, it went down 1.3%. It was 1,258 miles compared to 1,275 from '16.

All right. And then also I noticed that purchase transportation costs were up significantly in the quarter, up 16% year-over-year. Was that more in the freight side or the regional side and how much of that was fuel versus other?

David, that was mainly on the freight side and associated with the weather event we had in March. We used the purchase transportation to get back in service cycle in a short time period because of the timing of that winter storm Stella. So that should return to normal levels.

David, it's Stephanie. It was also related to the increase in the operating leases that we continue to bring on with the new revenue equipment.

Okay, that's helpful. And then the yields is certainly a hot topic right now. Doesn't seem that the rate increases have been keeping pace with the industry. If you just look broadly where YRC is, if I'm a shipper and I need to move some LTL, are you generally in the middle of the pack, on the top half of the pack, bottom half of the pack in terms of -- what's your price point?

Good question, David. In looking at the carriers who have reported so far, I think there is only 1 publicly traded LTL company left to report, maybe 2. But if you look at the publicly traded industry x YRCW, tonnage was up 2.6% in the first quarter compared to last year, YRCW was up 2.6%. Shipments industry excluding YRCW was up 1.4%, we were up 1.2%. Weight per shipment industry excluding YRCW was up 1.2%, we were up 1.4%. So while our yield didn't perform perhaps the way you guys were expecting, we felt like it pretty much was going to follow the trend that it took based on the fourth quarter. And so by the results of our competitors, I think it's safe to say that we're not out there over pricing. It's just some of the things that we decided to try and take on last year with some new projects, some new things with the supply chain changing the way it has to try to offer some different types of solution to customers. Didn't pan out as well as we want, but I tend to think that we're kind of in the middle of the pack.

Okay. So if I'm an ABC widget company and I need to move a pallet from Atlanta to Denver, I'm not paying a lot more using YRC, I'm not saving a lot of money by using YRC. It's kind of market rates, is that what you're saying?

That's my opinion. I'll let Darren comment on what he's seeing, but that's my opinion. We're in the middle of the pack.

Yes, David, I would agree with that and I'll try to get to the crux of your question as well. Certainly, at YRC Freight, we went 10 straight quarters of year-over-year positive yield excluding fuel. And then we went negative prior to us going negative in Q4 and then repeating that in Q1. I do expect a sequential improvement in Q2 and then also going positive in Q3, but we've seen that whipsaw at YRC Freight when we were outperforming the industry on yield but we were underperforming the industry on volume. Over these last 2 quarters with some volume wind in our sails, I'm trying to moderate that to the point and get out of that whipsaw where we're not swinging -- having these big swings back and forth. And the information that I'm talking about in Q2 from a sequential standpoint is exactly what I'm trying to do to play that out. So that it's more in line with the industry on both yield -- positive yield and tonnage.

And one of the things that ties into that is certainly service levels. And a lot of carriers as they improve their service are able to fetch a higher price in the marketplace. Can you talk about what's going on with service levels at YRC in terms of maybe on time and cargo claims? Are they getting better? Are they getting worse? Is that something that's holding back the rate increases?

Well, and that's actually a good point. I'm actually proud of our operational performance. On many calls last year and, most recently, the last earnings call, I talked about the improving service at YRC Freight. That's also helped me through this -- pulling these accounts forward as I didn't see the amount -- what I referred to as churn is where -- we put in the rate increase, but we actually don't maintain the business. Those percentages were more in line with our expectations around our improved service than they have been in the past. So that also gives me some encouragement around seeing yield go positive and also volume be balanced.

This is James, David. A couple of other comments. Agree with Darren, I've been really happy with the progress that they've made from a service and quality standpoint. I would just add that the regional carriers certainly are best-in-class providers in their areas of service and they are not out there out pricing as well. But they as well didn't have great yield quarters but still very balanced with their volume and yield trends. So feel good about where they're at.

And then last question for Stephanie on the equipment side of things. You've made an effort to bring in as many new trucks as you can allow through operating leases at the moment. Can you talk about where we are in terms of margin impact of fleet replacement? Because for a while, as the fleet was getting older, it was a margin headwind. But then YRC was able to get enough breathing room to start replacing the fleet and mitigating that headwind. Are we at the point where the trucks you're bringing on are kind of margin neutral in terms of the fleet is not getting any older so there's not necessarily incremental margin pressure? Or are -- we get -- are we at the point where you're bringing in enough new trucks where you're starting to get the margin back rather than stop the bleeding, if that makes sense?

Yes -- no, it's a great question. I mean, I think we're at that turning point where we are starting to get margin back with fuel miles per gallon, less maintenance cost, better safety from the NCAP safety technology that comes along with the new equipment. So I think we are that turning point where the margin is now going to start improving with the new units that we're bringing on.

I agree.

Next question comes from Scott Group of Wolfe Research.

So can you -- I just missed it, can you repeat the April tonnage numbers for each segment? And then I know you don't typically give us this, but just given kind of the importance of it right now, any chance you can share with us kind of April revenue per hundredweight year-over-year for the segments?

Yes, Scott, it's Stephanie. The April tonnage per day at YRC Freight was up approximately 6.2%. And at the regional segment, the year-over-year tonnage per day was up approximately 1.4%. And given that we don't give monthly revenue per hundredweight, we won't update on April.

Okay. And then did you say, James, in your comments that April had positive year-over-year EBITDA?

No, I said March of 2017 had positive operating income and adjusted EBITDA versus March of 2016.

Okay. But no comments on April?

No. We haven't got the books closed out yet.

Okay. Given your comments, I guess, Darren, that pricing is probably still negative in the year-over-year in the second quarter. Should we expect that it's tough to have positive EBITDA in the second quarter and that'll be more of a third and fourth quarter event?

I don't think I can fully answer that, but the sequential improvement that I called for in Q2, we have to get to positive yield that -- Scott, as you and I talked about on the last earnings call. And we talked a lot about weight per shipment, the growing weight per shipment and the decrease in length of haul, which both of those I don't necessarily consider bad. But we certainly have to offset that and drive it through to the bottom line. The mix in my network, I'm happy with. I think we've gotten to a really good spot and part of that whipsaw that I was talking to David about is getting some of the wrong freight out of our network has helped us moderate. So that's why I was willing to talk about the sequential improvement in Q2.

And certainly, if volumes stays in the numbers that was just quoted, that gives us a great opportunity to continue that pressure that we put in there. Also from the aspect of what I've seen from the pricing actions that we've taken, especially around some of the transactional pieces and that business has held, it just kind of goes along with what we've heard on some of the other earnings call that there's a little bit of strength out there. I'm not declaring that but it just appears that there's an opportunity here for us to continue this trend, which gives me that confidence about the sequential improvement.

Scott, this is James. On top of that, I would add that, that $25 million cost reduction effort that we put in. It's hardcoded, it's tracked line by line. About $16 million of that came from YRC Freight, about $9 million of it came from the regionals. And so, as we move through the second quarter, those costs will fully show up and be implemented in the -- we think that that's a positive for us as well.

So you're saying that you think, not guidance, but you got a shot for positive EBITDA in the second quarter even before pricing is fully positive year-over-year?

I'd like to see April before I would make a comment like that, but I won't stick my neck out that far.

Scott, this is Darren. The only thing that I would refer to is in my script where I also reiterated that we expect 2017 adjusted EBITDA to exceed 2016's adjusted EBITDA at YRC Freight.

Okay, okay. And then as you've put in some of these pricing actions, are you seeing any volume go away? I guess the April tonnage would tell you no but...

Well, we've actually had some significant on boarding as well on good revenue per hundredweight business. So I think some of that has been offset. Certainly, with the type of price increases we were taking to get to positive yield as quickly as possible, there was some tonnage lost through that process, but it was lanes that we strategically targeted. And that's also part of the length of the negotiation as we do this by three-digit ZIP Code. And that process, although complex, works out well for us and the customers. They're able to get the -- move their business in the lanes that are good for us and that have positive yield.

Okay, and then just last question just more theoretical. So it's -- I get the message of you want to try and balance yield and volume. It's been a while since you guys have been able to do that, right, it's been kind of one or the other. Do you think given, I know, either the cost structure, the service, the perception from customers, is it possible to get both kind of stable and steady and positive? Or does it kind of have to be one or the other? And then, just in theory, if you had to pick one from now, would it be price or would it be volume?

Certainly from an overall YRCW perspective, the perception that I get from customers is that we're doing well from a service and quality standpoint. We're continuously trying to balance yield and volume. That's been more of a challenge at YRC Freight because of -- as you know, when we started this whole turnaround, we had a terrible book of business, and that's been an ebb and flowing situation. That's been sometimes helpful or helped by the economy, sometimes it's been hurt by the economy. But our goal is to do both. But certainly, if you look at over time, yield is important to us. But you can yield yourself out of business too. So we've got to have that balance between yield and volume.

Yes, there's certainly a shipment number where your network is at optimum performance, and we balance around that. But part of that new and different business that James spoke to earlier that we took on in the second half of last year, some of it worked for us, but some of it didn't. And those adjustments are all part of this longer-term process. I will say the drastic volume declines we saw in that 2015 period, Scott, that you'll remember from just watching the yield and volume charts, I don't think we would see numbers like that just because we were intentionally purging some really unprofitable freight from the system. And that was worked, it was happening very fast, and also it was literally thousands of shipments exiting the network by our choosing and then building back from that has been the process. So if you go back to like the second quarter of '15 and watch our quarterly volume trend, you'll see that steadily increasing all the way through first quarter of '17.

Our next question comes from Amit Mehrotra of Deutsche Bank.

First one is just on the restructuring that you mentioned to drive -- expected to drive $25 million of improvement over the next 1 year. Just wondering if you can provide a little bit of color on that from a cadence standpoint. I'd imagine those are pretty immediate payback stuff. So just wanted to know what the magnitude will be in terms of the savings -- the offsetting positives in the second quarter. Just any help there to understand. And then just related to that, what kind of potential disruption to the organization that would be in terms of just taking out that many maybe nonunion employees? If you can just talk about that as well.

Sure. Good questions. First I'll start and say that it really was not a restructuring, it was just some adjustments that we made as a normal course of doing business. And we'll continue to look for those opportunities as we continue to improve processes and procedures as our technology improves, as we adjust and look at our networks. So this will be a continual process, so I'd never want to say that it's restructuring. If you look at the $25 million and spread it over 12 months, we feel like it's ramped up pretty quickly. And you can pretty much take it on an average over 12 months and it will come through that way. So there's not a big surge up at front and there's not a big surge at the end. It just took a couple of months to get it rolling and it's all implemented.

From an impact standpoint, we were very comfortable with the fact that we had invested heavily in dock supervisor tablets. We had improved our dispatching methodology with new handhelds at the regionals. We were able to look at combining some departments where there's duplicity and it's not necessarily brand-specific activities that we're able to combine from a department standpoint. So we don't feel it's had any negative impact on us. In fact, it's something that's been good to have some additional creativity come into some of these departments. We think it's been a real positive. And we'll continue to look for ways as we move forward to streamline this organization and make it as efficient and as productive as we can.

Great. Okay, that makes sense. And then just a follow up, if I could, on some of the fundamental -- I mean the business commentary in terms of March and April. I guess the plus 6%, or I guess 6.2% comp in tonnage and freight, I think that sounds good, but I think it more probably reflects an easier comp. If I remember correctly, I mean, I think the comp was negative 9% in April of last year. So I was wondering if you could just provide a little bit more context around how the April number is just so we get a sense of the relative fixed cost absorption in the business relative to a relatively weak first quarter.

Amit, this is Darren, and you're exactly right. Matter of fact, that revenue per hundredweight excluding fuel surcharge comp from first quarter of 2016 was 3.7% last year. And certainly, the tonnage comp was an easy comp year-over-year. That was -- the 3.7% was for the first quarter, that tonnage comp for April is certainly in line with the easier comp. So another thing I would throw in there as far as this discussion is the sequential improvement we're talking about in yield over the Q2. A large portion of that $25 million that James was speaking to naturally is at YRC Freight. Those -- that mitigation effort and cost reduction is by line item and tracked weekly, monthly and quarterly. Those dollars are certainly real.

Yes, just related to that, I mean, it looks like based on your guidance at freight -- or not guidance, but unofficial guidance, maybe we can say it that way -- in terms of adjusted EBITDA being up year-on-year at YRC Freight. It looks like that, that would kind of imply the remaining 3 quarters of the year being up in the, call it, 14%, 15% year-over-year range in adjusted EBITDA or maybe $20 million. It seems like just based on the reduction in the workforce that you could get there if you don't see any significant prospective degradation in the business. So I guess, like -- I don't want to say it's a layup because it's not, but given the restructuring savings that you now have good visibility on, I mean, what's your degree of confidence that you'll be able to grow adjusted EBITDA based on the comps you have remaining for the next 2 quarters?

Yes, all excellent points. And I think the majority of the people we've talked to so far today, they've been watching and following this company a long time. And they've certainly been watching me closely in the 3 years that I've been President. But for me to make those statements, one thing we've seen at this company as we watch it, yes, yield is turning slower than everyone wants, including myself. But at the end of the day, those turns come and benefit multiple quarters at a time is the way that process should work and what we've seen happen in the past.

Can I just ask 1 last clarification, I'm sorry about these long-winded questions, but just one for my own edification. There's been a lot of focus on this call and other calls about yield. And I just wanted to understand a little bit better how pricing -- how your pricing strategy changes when you do see some growth in weight per shipment trends? Because when you think about incremental pricing on incremental weight, if that makes sense, it seems like it could be quite dilutive to the yield but actually quite accretive to the returns of the business. And so I just want to understand that the yield, sort of flat to decline, obviously is not great but necessarily is that could be an indicator of things that are actually quite accretive to the profitability of the business?

Yes, it's good observations and good points. As we've discussed before, we don't just look at revenue per hundredweight as the end all to end alls of judging profitability. We look at weight per shipment, revenue per shipment, length of haul, loadability, where geographically freight is located, balance. I mean there's so many factors that we look at. And certainly the Amazon effect is real and that's creating some shorter length of haul opportunities which we think we can play in over time. And certainly, if the industrial economy continues to pop, that typically results in heavier shipments. So we'll see how that goes. But it's an interesting part of the business, trying to balance all this out, to kind of put a number that works and then try to be as efficient as you can to maximize the profitability.

Yes, and this is Darren again. One thing to add to what James said is we're fully deployed on dimensioners. And we saw the benefit of that for the full year 2016. It doesn't take as long to determine if freight is working for you or it's not working for you. We immediately run all new business through dimensioners. We're capturing that information and we have a very quick view and understanding of our mix. So I think that's the piece that's important here and that's also why I say with an increased weight per shipment and a decreasing length of haul, those things aren't necessarily bad. But certainly we need to be positive on the yield side. But I don't have to have this big whipsaw effect in yield versus volume. I think with all the intelligence we have now from the dimensioners, it's -- the process becomes more exact.

And the next question will come from Jeff Kauffman of Aegis Capital.

Just a couple follow-up questions. A lot of my big ones here have been asked. You didn't say anything about capital spending or capital plan. Can you give us an update on what you're thinking there right now?

You bet. Our plan is to continue to move forward as we have the last couple of years. If you look out over the last trailing 12 months, we're right about, right around 5%. So if we continue to hit our internal plans, you'll see us continue to spend CapEx dollars at our planned rate and that's certainly something that we intend to do.

Okay, so no change there?

No.

I wanted to circle back to the increase in purchase transportation. You also had a pretty big increase in operating expenses. I'm assuming a fair amount of that's fuel. But I want to try and understand how much weather did impact you this quarter because there were some pretty big storms out there. Where did the weather cost show up? I know we don't like to blame weather because trucking is an outdoor sport. But I'm just trying to understand what costs hit you in the first quarter that are less likely to continue in the second quarter?

Certainly, from a regional perspective, and then I'll let Darren talk from a YRC Freight perspective. But from a regional perspective, the Pacific Northwest just took a beating there in those first couple of weeks. I-5 was shut down numerous times between Oregon and California, and that really hampered Reddaway's operational efficiencies for, gosh, 2 or 3 weeks. At times I-5 would go up and down and just the torrential amount of rain that they had really affected Reddaway's results in January and part of February. And then the snowstorm Stella in March basically shut down our Northeast regional carrier for 36 hours and really hamstrung them from an efficiency standpoint for several days until they could get things straightened back up. But those were the 2 major impacts at the regional companies. And I'll let Darren talk about the YRC Freight.

Yes, and from -- of course, certainly we play an outdoor sport, and we plan for that and we expect it and we know that some type of weather is coming each year. But everything that James has talked about that affected different regional companies, each of those storms affected YRC Freight. And, of course, we have a fully deployed Canadian operation as well that always has to take weather into account. But specifically around lines to look at, there's productivity opportunities through weather events, but actually we outperformed on those year-over-year. The cartage piece that I was referring to really centers around local terminal cartage. And even though there is a monthly expense for us, the elevation of that occurs when a bottleneck happens in the national network and then we have to use that local terminal cartage to free that up quickly so that the remainder of the network doesn't have the increased cost. So that was the primary increase in the local terminal cartage line for YRC Freight in Q1.

Okay. So if I asked you to make your best guess between Stella, between the storms in the PNW, how much expense do you think the company incurred that is not going to be an expense that we see again in 2Q?

Jeff, it's Stephanie. That's hard to completely pull out of there. If you look at purchase transportation, it went up $19 million on a year-over-year basis. You could easily say that $8 million to $10 million of that could be weather-related. I'm guessing a little bit. But $8 million to $10 million of that, depending on driver availability as well because some of that is driver shortage related as well. So that's my best guess without having a lot of -- a lot more detail.

And I'll just throw something on that. A lot of times, the increase in the total purchase transportation that Stephanie is referring to doesn't necessarily mean it's a bad thing. We may -- in a weather event, we may choose to go to intermodal or rail operations that we would normally run over the road and other pieces that would drive that number up. But you would see the efficiency come back to you and that's part of the difficulty of putting a dollar amount on weather events. But it's certainly impactful, and there's a lot of exposure. We plan for it, we prepare for it and we try to recover quickly. But this one was certainly, we saw more costs associated with that in Q1 of '17 because we had a really mild winter last quarter -- or Q1 of '16.

And Jeff, this is James. I'll just also add that part of that is keeping our service levels up. And I can tell you that we continue to be very cognizant of that. We know it's a competitive industry and we're really pleased with what's happening at YRC Freight from a service standpoint.

Yes, in times past, we might've not have chose to spend that extra -- make that investment. And it certainly is paying off from a volume standpoint.

That's exactly what I was looking for. And I appreciate your candor on the swag there. One final follow-up, you spoke about the yields and you spoke about you tried to get creative last year with some key customers and it just didn't pan out as expected. When do we start to anniversary those decisions? Am I correct in thinking that those kicked in mostly in 3Q last year?

Yes, Jeff, it's Stephanie. You're right on. That new business that Darren and James have been talking about kicked in at the end of third quarter and was full bored in the fourth quarter. So we'll start seeing that anniversary significantly in the fourth quarter but a little bit in the third quarter.

Next we have a follow-up question from Brad Delco of Stephens.

Stephanie, just maybe for you, and James I think you said it -- you said you already expensed or experienced severance costs. When and what quarter and what amount was it?

Yes, so that severance cost went through in the first quarter. It was immaterial, about probably $1.5 million.

Okay. Got you. And it wasn't excluded from your adjusted EBITDA?

It was. It's down in the other line item.

Okay. And then you had restructuring professional fees of $2.2 million in corporate and other. Can you give us color as to what that was related to?

Yes, sure. That was related to the amendment that we did in January. Some of those fees were not capitalizable, so that's related to the amendment.

Okay. And then in the release when it says reducing utilization of external professional services, are you talking about third party cartage? What are you referencing there?

Yes, really just our every day third-party professional service companies like consultants, those kinds of people that come in to help.

Contractors.

Contractors.

And next is another follow-up from Scott Group of Wolfe Research.

So given the focus on trying to get yields back, any thoughts of being kind of a leader on this year's GRI and you think -- is the second quarter a realistic time frame for that?

Good question. I think it depends on what we see from a volume standpoint. If May is repetitive of April, there certainly could be a better case built for it. But I'd like to get through first half into May and then assess it. But volumes are going to dictate that, I think.

Okay, and then...

I wouldn't discount it.

Okay, and then I just want to make sure I have this right. Was there an extra half an operating day in the first quarter versus a year ago? And are you half an operating day light in second quarter? And then if that's right, how should we think about what does half an operating day help you in first quarter and hurt you in second quarter?

Well, we're definitely different workdays related to the Easter holiday. I'm trying to find my work days.

Steph, I have it in here. In the first quarter, freight went to 64 versus last year at 63.5. And the regional was actually 64.5 a year ago and 64 this year.

So yes that difference is the Easter holiday. Half a day I'm not sure has a significant impact to the overall results.

And next is a follow-up from David Ross of Stifel.

Just wanted to touch on the April trends that you talked about, because freight seemed to spike up a bit from March to April and whereas regional was more flattish. What are the differences you're seeing there that freight is able to somehow gain a lot more business whereas the regionals are just kind of humming along at the same pace as they exited in 1Q?

David, one of those as we talked about just a bit earlier specific to YRC Freight, the comps from April year-over-year. April was one of our worst months last year for tonnage decline. So that 6.2% for YRC Freight was on a low comp.

So if you look at it on a sequential basis it was more similar to the regionals from March to April?

I would say that would be right, David, yes.

Any comments on rail service? Has that been improving? Has that not kind of been up to snuff recently?

David, that's -- we're a significant rail user at YRC Freight, as everyone is aware of. And that's certainly an area of opportunity. What we've done is we certainly time the freight that we put on the rails. We take advantage of our length of haul and the day of the week that we actually put our trailers on the rail is beneficial even to take into account for the service from the rail. So I would say that it's been consistent and predictable, and that allows us to plan for it appropriately so that our customers aren't affected.

And because you are a significant user of rail, is there an opportunity to negotiate better pricing there?

That's a constant process in all areas and relationships that we have. And as you know, leverage moves around over time based on market events. So it's certainly an area that we spend a lot of time on.

And then you mentioned streamlining the businesses and getting efficiencies where you can. Any comments about the network, where are you seeing YRC Freight? And in the regionals, is there enough capacity, not enough, too much?

We like the way our network structure of 385 terminals in total are between all 4 operating companies. I think the networks are really set at the regional companies. YRC Freight, with the addition of some new talent, certainly is evaluating how that network looks and how we can make it more streamlined and more efficient. Too early to really discuss anything specific, but I would say that's a constant work in process that will evolve over time.

And we do the same thing, David, from a terminal footprint piece. You've seen us open 5 terminals in recent times. And specifically, Atlanta. I am so glad we opened South Atlanta when we did because with I-85 collapsed and the other things that's happened down there and where they've moved the new Braves Stadium, it's been very helpful to us in that city in taking care of our customers and seeing some nice growth in that area even though the congestion is out of control down there at the time being.

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

Thanks. So in closing, listen, we recognize the opportunities and challenges that are ahead of us. And as we've stated several times throughout the call, we expect to execute on our strategy for improving profitability through pricing and other efficiencies that we can control. I'd like to thank our employees. We certainly have some of the best and most experienced freight employees, and I appreciate their efforts. And I really appreciate all of you who took the time to be on the call today. I think you guys asked some really good questions, and we appreciate your interest in our company and we'll talk to you soon. Thanks.

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