Yellow Corp (YELL) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to YRC Worldwide's Fourth Quarter 2017 Earnings Conference 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 Fourth Quarter 2017 Earnings Conference Call. Joining us on the call today are James Welch, Chief Executive Officer of YRC Worldwide; Stephanie Fisher, Chief Financial Officer of YRC Worldwide; Darren Hawkins, President and Chief Operating Officer of YRC worldwide; and T.J. O'Connor, 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 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 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 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 fourth quarter and an update on the recent events from James, followed by Stephanie, who will discuss our financial results, and Darren who'll provide an update on YRC Freight.

Following our prepared remarks, James, Stephanie, Darren and T.J. will be available for a question-and-answer session.

I'll now turn the call over to James.

Thanks, Tony, and good afternoon, everyone. For 2017, YRCW was really a pretty normal company in that revenues grew in line with our expectations.

Net revenue growth offset contractual wage and benefit increases as well as higher fuel prices just as we planned. Our goal is to expand profit margin on our improved volume and yield. However, operating margins in the fourth quarter and for 2017 were unfavorably impacted by shortage of revenue equipment and a demand for drivers. These factors led to an increase in purchase transportation and short-term rental expense, with approximately 2,000 tractors and trailers rented during the fourth quarter. Basically, eliminated the planned incremental margin improvement.

Additionally, despite taking some positive steps forward in 2017, we did not fully execute down the stretch like we believe our company is capable of. The good news is, with a strong economy and a tight freight environment, a focus on enhancing customer service, growing yield, along with our commitment to reinvesting in revenue equipment and technology, we are both excited and confident that our business is positioned for a better year in 2018.

Next, I'll provide a few more comments about 2017 and our plans for 2018. The pace of onboarding revenue equipment was intentionally moderated earlier in the year as we successfully worked on amending and extending our term loan. In the fourth quarter, we took delivery of more than 450 tractors and we have approximately another 900 scheduled for delivery in the first 2 quarters of 2018. We also took delivery of more than 1,900 trailers in the fourth quarter of 2017, with approximately another 450 expected to be delivered in the first half of 2018.

In 2017, we were still able to invest the CapEx equivalent of $237 million for the year. Since the beginning of 2015, we have upgraded our fleet by taking delivery of more than 2,700 tractors or 20% of the fleet and 6,800 tractor -- trailers or 15% of the fleet.

We also continue to seek opportunities to improve our capital structure. And in 2017 and early 2018, we successfully extended the maturities of the term loan and CDA notes to 2022. Completing these extensions provides additional runway to continue YRCW's operational transformation and revenue equipment recapitalization.

During 2017, outstanding debt was reduced by $84 million. And I think it's important to note that over the past 5 quarters, the company's debt has been reduced by nearly $130 million. With a strong capital structure and economy performing solidly and our strategy to improve price, freight mix and profitability, we expect to improve operationally and financially in 2018.

Our goals for 2018 include continuing to secure the right price with our customers who value the service that YRC Freight, Holland, Reddaway and New Penn provide. And we will continue to focus on harvesting the investments that we have made and are making in revenue equipment and technology to improve productivities and enhance customer service.

Lastly, our executive succession planning transition that was announced in December is proceeding as planned, and I'm proud of how Darren, T.J. and Bob Stone are quickly and effectively coming up to speed in their new roles. Their leadership and capabilities exemplify the depth and strength of our highly experienced senior management team and bode well for YRCW into the future.

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 2017, YRC Worldwide reported consolidated operating income of $11.3 million compared with $14.9 million in the fourth quarter 2016.

For the full year 2017, the company reported consolidated operating income of $98.4 million compared with $124.3 million in 2016. The fourth quarter and full year results were favorably impacted by an increase in revenue, primarily related to higher yield at YRC Freight, additional volume at the Regional carriers and higher fuel surcharge revenue across the organization. However, the increase in revenue was more than offset by the cumulative impact of increase in the purchase transportation costs, contractual wage and benefit increases and an increase in fuel expense.

On an adjusted EBITDA basis, the company reported results of $58.5 million for fourth quarter 2017 compared to $57.7 million in the same period last year. For the full year, adjusted EBITDA was $274.2 million compared to $297.5 million in 2016.

The earnings release and presentation issued this afternoon include fourth quarter and full year segment financial information and statistics. Therefore, I'll keep my segment comments focused on a few key fourth quarter stats.

At YRC Freight, the fourth quarter 2017 year-over-year tonnage per day was down 0.5%. This was comprised of year-over-year increases of 1.7% in October and 1.1% in November and a decrease of 4.8% in December.

Preliminary January results indicate YRC Freight's year-over-year tonnage per day was down approximately 6%. We believe the decline in January tonnage per day was a result of the severe winter weather experienced early as more normal volumes returned later in the month.

Throughout 2017, YRC Freight remained committed to improving its year-over-year revenue per hundredweight. Although there are several variables that must be considered when working with freight mix, revenue per hundredweight has been a statistic that YRC Freight needed to improve, and inclusive of fuel, the year-over-year results increased by more than 400 basis points from the first quarter to the fourth quarter of 2017.

For the fourth quarter 2017, year-over-year revenue per hundredweight, including fuel surcharge, was up 4.4% and revenue per hundredweight, excluding fuel surcharge, was up 2.6%.

For the fourth quarter 2017, the year-over-year revenue per shipment, including fuel surcharge, was up 4.9% and up 3.1% when excluding fuel surcharge.

Turning to the stats for the Regional segment. The fourth quarter 2017 year-over-year tonnage per day was up 3.9%. This was comprised of year-over-year increases of 5.5% in October, 6% in November and 0.9% in December.

Preliminary January results indicate the Regional segment's year-over-year tonnage per day was down approximately 2%.

For the fourth quarter 2017, year-over-year revenue per hundredweight, including fuel surcharge, was up 1.2% and revenue per hundredweight, excluding fuel surcharge, was down 0.4%. Through the end of January, the Regional carriers experienced a noticeable improvement in yield. For the fourth quarter 2017, year-over-year revenue per shipment, including fuel surcharge, was up 4.6% and up 2.9% when excluding fuel surcharge.

In terms of liquidity, our cash and cash equivalents and managed accessibility under the ABL facility at December 31, 2017, was $118.3 million. In conjunction with maturity extension of the CDA notes, we used $25 million of available cash to reduce the principal on the notes.

The company's total debt at year-end 2017 was $926.1 million, which is a reduction of $84 million during the year and a lowest balance since the first quarter 2005.

Regarding our credit facility covenant, at the end of the fourth quarter 2017, the last 12-month adjusted EBITDA was $274.2 million and the funded debt to adjusted EBITDA ratio was 3.38x compared to a maximum credit facility covenant of 3.5x. As a reminder, the covenant maximum remains at 3.5x through the end of 2018.

Finally, just a few closing thoughts. First, we believe the recently enacted 2017 Tax and Jobs Act will be positive for our customers in the overall economy. However, with approximately $800 million of net operating losses available as of the end of 2017, we don't anticipate a near-term impact to our federal or state income tax expense and the corresponding impact to our cash paid for taxes should remain minimal.

Second, from a CapEx standpoint, consistent with the last 3 years, we will continue refreshing our fleet and invest in technology across our networks. These investments provide productivity enhancements and allow us to discontinue our reliance on short-term rentals and local purchase transportation.

In closing, as we work to mitigate the use of short-term rentals, reduced local purchase transportation expense and hire additional drivers in the near term, we expect our year-over-year improvements will be weighted to the second half of the year.

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

Thanks, Stephanie, and good afternoon, everyone. The fourth quarter results for YRC Freight include year-over-year improvement in revenue, operating income, operating ratio and most importantly, yield.

As you heard from Stephanie, including fuel surcharge, Q4 2017 revenue per hundredweight increased 4.4% and revenue per shipment increased 4.9% when compared to the same period in 2016. This represents 3 consecutive quarters of positive year-over-year yield improvement. And in Q4, YRC Freight delivered the largest year-over-year increase in revenue per hundredweight and revenue per shipment since the fourth quarter of 2014. These items resulted in a 54% improvement in EBITDA year-over-year for YRC Freight.

During the fourth quarter, YRC Freight averaged 4.5% increases on customer contract negotiations, with December coming in at 5.2% and that trend has continued into the first quarter.

Considering the current capacity and rate environment, we intend to continue our emphasis on solid pricing gains throughout 2018 and also set the pace for upcoming contracts by implementing a general rate increase for noncontractual customers of 5.9% on February 19, 2018, for all YRCW companies.

As you heard from James, we are working to reduce local purchase transportation and short-term rental expense and an integral part of this strategy is to continue upgrading our fleet. With the ongoing admissions to revenue equipment, by April 2018, we expect that approximately 68% of YRC Freight's line-haul tractors will be less than 3 years old, which is nearly double what it was as of the end of 2016.

Upgrading the fleet not only enhances safety, but we also see a noticeable improvement in fuel efficiency, service reliability and a decrease in maintenance expense compared to the units replaced.

As we look ahead, in addition to prioritizing yield improvement, the 2018 strategic objectives for YRC Freight include: first, safety. In-cab technology continues to deliver dividends around accident avoidance and is being supplemented by a new investment around employee injury avoidance. This new nationwide initiative is being implemented by our field employees with the assistance of an outside partner with proven success in this area and focuses on the elimination of the most frequent injury exposures in our daily operations.

Second, service. The 8 regional distribution centers that were part of the latest network enhancement have been contributing to the network for over 2 months now. And it's good timing to help meet our customers' expectations for 2018. This network enhancement is expected to improve operational efficiency, which results in better service through faster processing, greater density and fewer transfers of our customer shipments.

Third, sufficiency and quality. The multiyear change management and technology investments around line-haul and pickup and delivery operations is now maturing into a 2018 benefit through overall mile reduction, better cube utilization and intended cost reduction on these 2 impactful areas of our company. These large projects are being implemented in stages and network benefits should continue to align around each additional install throughout 2018.

Fourth, driver hiring. We continue to invest in technology such as our applicant tracking system that allows for streamlining processes and reducing time to hire. We've made investments in recruiting personnel to allow for additional driver training instructors throughout the network to support our tuition-free driving schools. In 2018, we expect to operate over 80 driving schools throughout the country. We also continue to focus on promoting the dock-to-driver program. Although the internal organic driver creation is our most preferred method to add drivers, we are also using the following external resources: ongoing hiring events and job fairs, partnerships with military and veteran agencies, partnering with external driving schools along with providing tuition reimbursement and leveraging both traditional and social media advertising.

We will continue to evaluate additional opportunities to expand and to improve our hiring process to ensure we have the driver resources required to serve our customers.

In closing, and with the recent transition of my role as Chief Operating Officer for YRCW, I have confidence in the yield momentum at all of our operating companies and that should be further enhanced by our investments in technology, revenue equipment and most importantly, people.

We intend to continue balancing volume through price to keep the networks fluid, efficient and profitable.

I appreciate the contributions of our hardworking employees that continue to move these companies in the right direction.

I would also like to congratulate T.J. O'Connor as the new President of YRC Freight. I'm very proud of his accomplishments and strong results at Reddaway and have full confidence that he will continue the same cadence of improvement at our largest operating company, YRC Freight.

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 Scott Group with Wolfe Research.

Stephanie, I think you mentioned that Regional pricing has gotten a lot better in January. Can you put some numbers around that?

Yes. So the Regionals are seeing about a 4% to 5% price increase on their (inaudible) as they've come through January. So that is actually turning positive for them from a revenue per hundredweight perspective.

And I think that's important, Scott, to call out. If you think about their weight per day, it was up 3.9% in the fourth quarter and their weight per shipment was up 3.3%. So to finally get the yield turning the way we want to is going to definitely help the Regionals moving forward. They've been, as we know, a little slow to catch on with the yield momentum, but their weight per shipment has been growing and weight per day and -- which had offset the revenue per hundredweight. So good question.

Stephanie, what was the metric you just gave that was up 4 point...

I said 4% to 5%.

And what was that in the fourth quarter?

I think it was closer to 2% to 3%.

Okay. And then you talked about -- you think weather's having a big impact on tonnage at Freight. Is there any way -- I know you don't typically do this. But is there any way to sort of give us the first half of January, second half of January or give us sort of what the last couple of weeks have been just to get a sense on what you mean.

Scott, this is Darren. Certainly, first half of January, a noticeable decline around the weather and not having all of our terminals open at not only Freight but at some of the regional companies as well. The last 7 business days of the month, when the entire networks were all up and running, we saw tonnage in line with what we would expect in January. So it was a noticeable difference.

Is it still down year-over-year?

Yes.

Okay. And then Stephanie, just on the balance sheet, so liquidity is down, I think, $118 million. How much -- what's the minimum you need to run the business? And do we need to start thinking about plans to raise some capital here?

We of course always want more cash and more liquidity as we move throughout the year. We invested in our balance sheet in 2017 with the extension of the term loan and the extension of the CDA, paying about $60 million down on debt. We thought that was a valuable investment. Additionally, as you know, and we've talked about for the fourth quarter and the first quarter here in 2018, we are also investing in revenue equipment. So would I like to have more cash? Absolutely. But as we move through 2018, we'll continue to build cash and we'll look at all of our options from an equity and debt perspective.

Is there a good rule of thumb of what you think a minimum liquidity balance is? And can you share what the cash CapEx is for '18?

For CapEx, we expect to be in that 5% to 6% of revenue like we have been over the last 3 years. We need to continue to invest in CapEx from a technology and revenue equipment perspective. From a liquidity perspective, I'd like to have in that $150 million to $200 million range, realizing that I'm below that right now. But like I said, the investment that we made from a debt perspective in 2017 was worth the lower liquidity.

The next question comes from David Ross with Stifel.

Could you -- I guess, with the employee hiring difficulties, does that mean that your headcount was down year-over-year and you're missing some people? Or did you just not have the right people in the right places? So I guess another way to ask the question is, what was -- what happened to the headcount year-over-year at both Freight and Regional in the fourth quarter?

David, this is Darren. That would be down at both Regional and YRC Freight. Not large numbers. But to your point about location specific, when we did our network enhancement, we chose locations intentionally around our success of hiring there. So that's certainly having a contribution to the network. But overall, we're still a few hundred drivers short. And even in a downtime of the year, that's crucial. We certainly went to the purchase transportation lever to make up for those shortfalls to continue providing a reliable service to our customers but -- with the focus that we've done. And certainly, I mentioned it a lot about in the script this time just because of the investments we're making in our hiring efforts across the entire organization focused around drivers.

And certainly, that created more overtime than what we'd like to have, Dave, along with bad purchase transportation, which is that city local cartage. So T.J., you want to make any comments about the Regionals a little bit more than what Darren was talking about?

Well, certainly, in certain geographies, David, we had continued driver demand that exceeded available -- for the industry, frankly. So certain markets were very negatively impacted by available job seekers and our ability to hire to the needs of the business, particularly in Q4.

Are you able to adjust wages up high enough? I know that you've gotten some concessions from the NMFA previously for market-based hiring. And then, how quickly would you be able to pass that on through better yields or higher pricing?

David, the ability we've got is to speed up the progression to top out pay. So in most locations, that is sufficient, and once you identify the applicant. The other piece is we're still capable of attracting drivers from other modes as well just due to the quality of life around LTL. And our turnover's not near what you see in other segments. So those things are working for us. The wage progression has been a help. But even some of the markets that T.J. was just referring to, those are difficult regardless of what the wages are. And I think it was you that commented recently that there hasn't been any new drivers invented since 1985. And we're certainly trying to change the trend on that.

And Dave, this is James. I think it's important to note that we've got that wage program in about 61 different markets right now. So it is starting to have an effect. And certainly, we'll build on that in 2018.

Yes. I think we failed to answer the question you asked about the yield side of it. But certainly, our yield efforts, the announcement of the GRI, the trend we're seeing at the Regionals, the positive trend at YRC Freight on yield, all those items worked together to cover that investment that we're making, David.

And not to pile on, Dave, but it's starting to be even more interesting that our negotiated rate increase is starting to narrow to the increase that we're actually getting. There's always been a pretty good gap between those 2 numbers, with what we negotiate with the customers and what we actually get. And over the last several months, we're starting to see those 2 numbers narrow. And that's something we haven't seen in a pretty good while and I'm very excited about that. So...

And then last question is just on the tractor fleet that you mentioned. When you said that 68% of the line-haul tractors are going to be less than 3 years old in a few months. What percent of the tractor fleet is line-haul versus P&D?

That would be 30% -- between 30% and 40% would be the line-haul side versus P&D, but the mileage side of the equation certainly it's the most impactful.

And then where does the tractor count end up at December 31? Or where is it today, either one?

We have about 14,000 tractors and 45,000 trailers.

And that's across both segments, correct?

Correct.

The next question comes from Brad Delco with Stephens.

James, Stephanie made a comment about the cadence of margin improvement. I just want to make sure I heard that. With all the yield initiatives with the benefits of the line-haul optimization, P&D optimization, you guys are expecting year-over-year margin improvement throughout the year but the cadence will be greater in the back half of the year. Can you put more color around that?

Yes, this is James. I'll take that. And if Stephanie wants to add in some comments, that's great too. We just like to get the momentum we had coming off the fourth quarter and the amount of new equipment that has yet to come onboard. I mean, we're taking on tractors every day, but we're not fully ramped up with those 900 new tractors in the first half of the year until the end of the first quarter. So we know we're still going to be in the short-term rental business for a while. We know we're still going to be in the cartage business for a while. So we just feel like a bit our '18 results will ramp-up as we move throughout the year, but feel really good about, again, the yield story that's developing along with the amount of new equipment that is coming in. We know that that's going to give us some relief in a couple of areas. I mean, if you really look at the fourth quarter, we spent about $15 million more than we wanted just in short-term rentals. And real miles in bad local cartage PT, and then we had legal settlement of about $4 million. So I could bridge that fourth quarter number up pretty easily just in 4 different categories. So we think we'll definitely get better in those and that bodes well for us in 2018, Brad.

And the $15 million was just rentals? That wasn't cartage or anything else?

That was cartage, short-term rentals, purchase transportation and then a class action legal settlement.

Okay, so $15 million was total for all that?

Yes.

Yes.

Okay. And then Steph, you want to add anything more to that?

No. I think it's just important to note that in the first couple of quarters here, we're going to be adding that new revenue equipment and finishing some technology investments as well. So we're still investing right now, which is why we think the second half of the year will be better than the first.

Okay. And then, I don't know maybe James or Stephanie, another question for you. I think most investors understand the need for capital and what a younger fleet could do. But we really don't have a good perspective as to where is the condition of the equipment. And I know you guys don't give average age, but you've given us here some data about the line-haul fleet. But could you give a number in terms of the entire fleet on where you are from a fuel economy perspective? And what bring down -- we can kind of assume where we think your fuel economy could go if you had a younger fleet and see what kind of savings could be just on that alone? Can you give us a number?

Yes. This is James. I'll take a stab at that. We know that this new equipment that we're bringing on is giving us fuel mileage around 7.5. And we know that we have a lot more older equipment than we have newer equipment and that older equipment gives us fuel mileage in that 5.2 to 5.5 range. So there is a significant difference just in the economy of those 2 different ages of tractors. And then we fill in safety equipment, the maintenance costs, service impact, delay pay, downtime. I mean, it just goes on and on. So we know that anything that we can do to bring on new equipment is going to make our company more healthy. There's just no doubt about it. So hopefully that helps you out a bit.

It does. And maybe just one quick nuance question. You guys provided us an update about November yields for Freight that -- trying to find it. I think we're up 3.7% and you finished the quarter up 4.4%. Was there just that much more pricing that came through late in the quarter or was that a big yield change to take on heavier weighted shipments then? Any color on that would be helpful.

Brad, this is Darren. And from that aspect, YRC Freight continued to gain momentum throughout the quarter. We saw that momentum increase in January. A comment James made earlier, we talk about our rate increases on our contractual negotiations. And in the past, even some of the analysts called it out as we were talking through it on earnings calls that those numbers on contractual rate increases weren't actually showing up in the yield numbers and James' comment earlier. We've seen those 2 numbers come much closer together now. So that's encouraging for us. That shows that the pure price increases are coming through. It gives us confidence in announcing the general rate increase and also for a heavy number of negotiations that are occurring right now and in the first half of the year that will certainly contribute to 2018.

The next question comes from Amit Mehrotra with Deutsche Bank.

It's Seldon Clarke on for Amit. Could you just give us an update on your cost savings targets for 2018? And maybe just like given the strength in the backdrop, if there's any potential to exceed those targets?

Seldon, are you referring to the cost-saving initiatives that we announced in the first quarter of 2017, the $25 million? Is that what you're referring to?

Yes. Exactly. I just kind of wanting to get understanding of like the run rate into 2018?

Yes. I think as we move into 2018, we're at full run rate for all of those costs. Most -- actually all of those initiatives have been put into play. Most of them were put into play early in 2017. So as we move into 2018, those initiatives are at full run rate.

Okay. Great. And is there -- I guess, just given the backdrop, is there potential to kind of exceed those savings just like -- given like stronger volume trends and maybe like higher rate increases, stuff like that?

Yes, this is Darren. The yield initiatives we've been talking about, they're very powerful. That's one of the most difficult metrics to drive change in. It's good to have momentum there. So that's certainly one of the most encouraging pieces going into 2018 and coming out of January. We're continuing the investment in technology but those fleet investments -- and even though we didn't go into detail on the age of the current fleet, the numbers that James called out, they're impactful. And those kind of injections into our networks have a large impact. And its impact that can be measured and realized in a quick fashion because as soon as those tractors go into service, you immediately start seeing the safety benefit, the lower maintenance benefits and their improved reliability. But most importantly, the improved fuel miles per gallon have an immediate impact on the week that they go into service. So the other piece I'd like to call out is, certainly, the technology investments in our line-haul and our pickup and delivery operations, 2 of the largest cost buckets we have, those are mature going into 2018. And we expect those to continue to provide upward mobility to the company throughout the year.

Okay. That's helpful. And then just lastly on your CapEx budget. Could you just give us a breakdown on what you're budgeting for technology versus equipment?

For 2018?

Yes.

Yes. So we don't provide that kind of forward-looking guidance. All I would say is that we're budgeting that 5% to 6% of revenue range, with a heavy focus on revenue equipment in the first half of the year here.

The next question comes from Willard Milby with Seaport Global Securities.

Just kind of wanted to talk about the change of operations at Freight. I was just going to see if I could get an update on that. Has that going smoothly, as there had been some puts and takes there? Just kind of talk about how that's progressed.

Yes. This is Darren. I'll make a few comments on it. And then I'll let T.J. give you some recent updates as he's had the controls at YRC Freight since January 1. The implementation was successful. All 8 distribution centers are up and running. Certainly had a contribution to the network. As I mentioned -- that we needed the capacity going into Q4 and that those locations were also helpful. Overall, it's a good thing for 2018. We're not at full capacity at any of those facilities at this point. At a couple of them, it would focus around hiring. And at others, as volumes grow, we'll certainly point those volumes toward those new more productive facilities. And with that, I'll let T.J. fill in any blanks.

Sure. Thank you, Darren. Will, so what we're seeing really is a metered or measured deployment of additional business through those new HDCs commensurate with, one, hiring availability training and bringing new employees online. And then secondly, with business volume. So we're about where we expect to be relative to implementation and would expect that to continue through the first quarter.

All right. Sounds good. With the tractor and trailer additions coming on in the first half of the year, about what percent of those are going to be incremental additions versus just replacement to kind of get every fresh fleet? I'm just kind of asking that from a point of view of, what of the purchased transportation or rental equipment can you eliminate with these additions?

Those are not growth units. Those are all replacement units. So anything that we can do to exit short-term rentals and reduce our dependency on any local cartage types of scenarios is very important to us in '18. And we're feeling very confident with just the sheer amount of equipment that we're bringing on. That was intentionally back loaded to the second half of 2017. That's going to propel us forward especially in the second half of the year.

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

Thank you, operator. Currently, we feel like we're in a very positive trucking environment. We've got a strong economy to work with. Certainly, there's a lot of discussion about the limited availability of drivers and equipment in the industry. So with that backdrop, we feel like the investments that we've made and that we will continue to make really position YRCW to serve its customers, employees and investors well for the long term.

So again, appreciate you taking the time to listen to our call today and look forward to catching up with some of you. Thanks.

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