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Executives

Stephanie D. Fisher - Vice President and Controller

James L. Welch - Chief Executive Officer and Director

James G. Pierson - Chief Financial Officer and Executive Vice President

Jeffery A. Rogers - President

Analysts

Taylor Mulherin - Deutsche Bank AG, Research Division

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Carol A. Krakowski - Wolfe Research, LLC

Allison M. Landry - Crédit Suisse AG, Research Division

A. Brad Delco - Stephens Inc., Research Division

Alex Scott

Thomas S. Albrecht - BB&T Capital Markets, Research Division

YRC Worldwide (YRCW) Q1 2013 Earnings Call May 3, 2013 9:30 AM ET

Operator

Good morning. My name is Lindsay and I will be your conference operator today. At this time, I would like to welcome everyone to the YRC Worldwide First Quarter Earnings Conference Call. [Operator Instructions] Stephanie Fisher, Vice President and Controller, you may begin your conference.

Stephanie D. Fisher

Thank you. Good morning. Thank you for joining us for the YRC Worldwide First Quarter 2013 Earnings Call. James Welch, Chief Executive Officer of YRC Worldwide; Jamie Pierson, our CFO; and Jeff Rogers, President of YRC Freight, will provide comments this morning. James, Jamie, and Jeff will be available for questions following our comments.

Now for our disclaimers. 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. These include statements regarding the company's expectations, assumptions of future events and intentions on strategies regarding the future. The format of this call does not allow us to fully discuss all of these risk factors. For a full discussion of the risk factors that could cause the results to differ, please refer to this morning's earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q. Additionally, please see today's release for a reconciliation of operating income and loss to adjusted EBITDA and the reconciliation of adjusted EBITDA to net cash flow from operating activities and adjusted free cash flow deficit. During this call, we may refer to the non-GAAP measure of adjusted EBITDA simply as EBITDA. I'll now turn the call over to James for some introductory comments.

James L. Welch

Thanks, Stephanie. Welcome to our first quarter conference call and thanks for taking the time to listen in. I will make some brief overall comments and then Jamie will cover the details of our financial results and then Jeff will discuss the performance and progress at YRC Freight. And certainly, we look forward to answering any questions that you might have after our comments.

We concluded the first quarter of 2013 with continued momentum that we begin generating during the last half of 2012. Despite finding difficult winter weather conditions throughout the quarter, our 2013 first quarter performance is substantially better than the first quarter of 2012. By substantially better, I'm referring to quadrupling EBITDA from $15 million to $61 million and expanding our EBITDA margin by 390 basis points to 5.2%. In fact, the last time YRCW delivered this type of financial performance was when the first iPhone was hitting the market. Yes, it was that long ago. But the brutal fact is, we simply are not yet performing as well as we should be and our management team recognizes that. And as I stated in the fourth quarter conference call, and I will say it again, we must perform better.

Since this management team took over in late 2011, we have consistently exceeded our internal forecast and we did it again in the first quarter of 2013. I believe our current momentum will play on our favor as we move forward throughout the year and as we seek continued benefits from the operating initiatives we have implemented over the past few quarters. Our management team continues to make the adjustments necessary to improve our operating results. Customer mix management has been a key ingredient in returning the company to positive consolidated operating income, especially at YRC Freight. It was not all that long ago when the financial condition of the company was preventing us from achieving competitive pricing levels. Now improved service at YRC Freight and best in class service at the Regional carriers are giving us the opportunity to get a competitive price in the marketplace. This is yet another important step in executing our turnaround which can be seen in our results.

Our regional carriers are already arguably best-in-class, Holland, Reddaway and New Penn continued to perform competitively and are well-positioned in their respective markets. I like the work that they're doing and believe that they will continue contributing positively to our turnaround efforts and subsequent results.

We have excellent and stable management teams at each of our regional companies. If we were to see an economic pickup, this group of carriers could immediately leverage additional business volumes to bottom line profitability and cash flow.

YRC Freight's intense focus on load average, along with the improved operating efficiencies, have been important areas of improvement. Obviously you noticed the 740 basis point improvement in its operating ratio for the first quarter of 2013. No doubt this performance has to be one of the industry's best year-over-year quarterly improvements in recent history. Instilling a new culture of service, safety, discipline, and accountability is giving us a better opportunity to grow the business at YRC Freight.

One of the most positive aspects of our turnaround has been a tremendous improvement we have driven in our safety performance and thus worker's compensation and BIPD results. We have had an all hands on deck approach at all 4 operating companies in our efforts to improve safety. Our employees have done just a terrific job of accepting the challenge. Not only have they made improvements in safety performance, but they have also embraced the opportunity and have driven substantial change to our culture. Improved safety is important in and out of itself and as Jamie will discuss, it has a real and quantifiable impact on our financial results and cash flow.

Another important aspect of our improved service and operating results is the decrease in our cargo claims frequency. Customer satisfaction and quality are absolutely vital to our future success and just as we have invested in training to improve our safety performance, we are also making investments in equipment to deploy industry-leading technologies, which generate returns and productivities and efficiency savings.

We've just finished the first full month of our liquefied natural gas pilot project, YRC Freight partnered with Clean Energy, and the California South Coast Air Quality Management District to purchase 4 LNG units to operate in and around the port of Long Beach. The pilot project is giving our operations and maintenance teams a first-hand look at the performance and fuel efficiency of natural gas vehicles. Along with our natural gas pilot, we are also making strides in our road mileage with clean diesel units. YRC Freight, for example, is running slightly more than 20% of all of its over the road miles with 2012 and 2013 EPA SmartWay designated power units. It is also realizing fuel efficiency gains from modifications to its 53-foot trailers with trailer skirts and fuel-efficient tires. More than 3,000 YRC freight trailers have been upgraded. In addition, YRC Worldwide has transitioned nearly 50% of its fleet to SmartWay certified fuel-efficient tires and plans to complete the remaining units in the near term.

Another corporate initiative that we are participating is a pallet dimensioner project and partnership with Mettler-Toledo. So far, the results are positive and the technology driven precision of the dimensioner gives us and our customers’ confidence in the data. This project is providing us valuable insight to prepare for what we believe will ultimately be an industry conversion to dimension-based pricing.

The management team continues to make adjustments and as Jeff will discuss, YRC Freight is working hard to further optimize its network. Jeff and his operations team inherited a network that was simply too bloated with overcapacity and inefficiencies. And density was just a passing thought in the rear view mirror. Today the groundwork has been laid to drive the next round of operating and margin gains. The next challenge for YRC Freight and its employees will be to take the momentum from these improvements and turn them into continuous and sustainable gains. This is the path for us to regain our position as a leader in our North American LTL industry.

With that I'll turn the call over to Jamie.

James G. Pierson

Thanks, James, and good morning, everyone. As noted, our performance continue to improve year-over-year, which, considering the amount of winter weather we experienced, is a testament to our operations -- our planned operations folks.

For the first time in 6 years, we reported positive consolidated operating income for the first quarter of the year. These results are product of pricing discipline, customer mix management and productivity improvement. As for the stats, YRC Freight's tonnage per day was down 5.4% and Regional tonnage per day was up 1.9%. The decline at YRC Freight was due to capacity discipline and concerted effort to shed unprofitable business.

YRC Freight's revenue per shipment grew 3.2%, which included an increase of 3.4% in revenue per hundredweight and a slight decrease in its weight per shipment of 0.2%. While the regional carriers increased their revenue per shipment by 1.6%, and the revenue hundredweight by 2.3%, their weight per shipment decreased by 0.7% on a year-over-year basis.

On the earnings side, YRC Worldwide reported consolidated revenue of $1.2 billion from 1Q '13, which was 2.7% lower than 1Q '12 due to a 4.5% decline in revenue at YRC Freight. Customer mix management and 2 fewer operating days factored into the decline, both of which were offset by revenue growth of 1.7% at the regional carriers. Additionally, we reported consolidated operating income of $10 million in 1Q '13, an increase of $58.7 million when compared to 1Q '12.

And finally, we reported adjusted EBITDA for 1Q '13 of $60.7 million, an increase of $45.4 million over $15.3 million recorded in the first quarter of '12. And an increase to EBITDA margin by 390 basis points. This brings adjusted EBITDA for the latest 12 months to $287 million.

On a segment basis, for the first quarter of 2013, YRC Freight reported operating income of $2.4 million, a $58.5 million improvement year-over-year and an operating ratio of 99.7, which represents an improvement of 740 basis points versus 1Q '12. Further, we reported adjusted EBITDA of $33.6 million, an increase of $44.3 million from the first quarter 2012 and EBITDA margin increased by 7 -- I'm sorry, by 570 basis points to 4.5%.

Our regional segment reported operating income of $12 million, an increase of 5.3% over 1Q '12 and operating ratio of 97.1. Additionally, they reported adjusted EBITDA of $29 million, which was flat compared to the first quarter of 2012.

Turning to cash flows and liquidity. We ended the first quarter with balance sheet cash and ABL availability of $215 million, which is a decrease of $36 million from the end of 2012. The first quarter is typically the low point in our liquidity cycle as a result of increased working capital needs, timing of annual payments and a reduction of our availability under our ABL facility, which is calculated on a 1-month lag basis. Our ability to maintain liquidity at this level is due to our continued operational improvement across both of our reporting segments and continued active management of our balance sheet and working capital.

If I may, I'd like to leave you with a few important takeaways for the quarter. One, in just 3 months ending March 31, 2013, funded debt to adjusted trailing 12-month EBITDA nearly decreased another full turn from 5.7x to 4.8x. Since this management team took over in July 2011, we have decreased our leverage more than 8 churns. We know we are still over-levered compared to our peers. However, we are growing into our capital structure each quarter with our improved operational performance.

Two, during the first quarter of 2013, we decreased our outstanding letters of credit by another $14 million or 3.2% from $443 million to $429 million. This is in addition to the $53.5 million decrease in 2012 and is a result of our continued safety improvements made by our employees in combination with our work comp and risk management teams. Consequently, our work comp and BIPD liabilities have decreased, which has enabled us to bring down the outstanding LCs backstopping these programs and in addition to derisking our capital structure allows us to save the cash otherwise spent on LCs.

Three, as a result of our improved operating performance, ability to meet and/or exceed our internal forecast and decreased leverage and stable liquidity, we received a clean opinion on our year-end audit from our external auditors, something we have not had since 2008.

In closing, I'd say we are pleased with our year-over-year performance, not only in the aggregate growth but in margin expansion as well. However, we know we still have a lot of work to do and we'll continue to focus on executing our turnaround plan and delivering results that meet or exceed our internal forecast.

Now I will turn it over to Jeff Rogers to talk about YRC Freight and the progress he and his team have made there.

Jeffery A. Rogers

Thank you, Jamie, and good morning. We continued our positive momentum into the first quarter of 2013 and improved our operating income by $58.5 million, making this the third consecutive quarter YRC Freight reported positive operating income. These operating improvements are due to our continued focus on getting back to the basics of the freight business and focusing on business that fits our network and core competencies. This focus resulted in an EBITDA margin of 4.5% for the first quarter of 2013, which was mostly due to the 3.4% year-over-year increase in our revenue per hundredweight and incremental operational improvements. The revenue per hundredweight increase is due to our concentration on growing higher margin and higher value-added services.

Our tonnage declined 5.4% year-over-year as our comparisons reflect tough first quarter 2012 comps and continued aggressive mix management that went on throughout 2012. But I assure you, we have a strategy for measured, disciplined growth as we work our way through 2013.

Finally, I'd like to update you on our network optimization efforts. On April 19, we held a hearing with the Teamsters at which time, the requested changes were approved. As a result of these changes, a tremendous amount of fixed cost will be eliminated, generating gross annual savings of approximately $25 million to $30 million. The network enhancements will enable us to improve efficiencies in the areas of terminal density, lane density and our ability to direct load with less handling and will help us improve service consistency, both from an on-time and cargo claims basis and increase customer satisfaction. We expect the approved changes to be implemented in a couple of weeks.

I'd like to thank our employees and the Teamster leadership for their hard work and constructive attitude toward improving YRC Freight's operations and profitability. The team is focused. We have a clear strategy and we are executing better each and every day. Today, more than ever, we are an organization powered by professionals. With these comments, James, Jamie and I are ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Justin Yagerman with Deutsche Bank.

Taylor Mulherin - Deutsche Bank AG, Research Division

This is Taylor Mulherin on for Justin. You guys did a good job of adjusting business mix as a way to drive margin expansion. Can you talk a little bit more about the productivity improvements you've also mentioned and what you can do to improve this part of it even more?

James L. Welch

Jeff, you want to take that one?

Jeffery A. Rogers

Sure. I mean a lot of productivities -- the biggest area of our productivity has been in our line haul network. But again, we're seeing improvements really across the board when you look year-over-year and even compared back to where we've been over the last several years, in Dock and P&D. I won't go into specifics, but I think the change of operations that we're going to put in place will just continue, mainly from a line haul perspective but we're going to continue to see improvements.

James L. Welch

And at the regionals, even though the majority of our business is mixed, Taylor, there are a couple of those companies that do have 2 and 3-day service points and they've done a nice job, as well on improving our load average. And productivities on the Dock have been good at the Regional companies as well. So it has just been a concentrated effort to be very mindful of the operating components of our business and improving on each and every one of those.

Taylor Mulherin - Deutsche Bank AG, Research Division

And on the freight side of it, is there a line of sight on how much more room there is to improve the quality of service in that aspect?

Jeffery A. Rogers

Well, I'd say, we're just working on it every day. I'm more concerned with being consistent day in, and day out. I mean we're always trying to get better from a customer perspective and make their experience better. But we really have work to do to be consistent day in and day out.

Taylor Mulherin - Deutsche Bank AG, Research Division

Okay. And with the network optimization plan that just was approved by the Teamsters, is there a timetable about how long it will take to achieve that $25 million to $30 million of annual savings that you put out?

Jeffery A. Rogers

We're going to begin implementing in the third week of May. It will take us 1 month or 2 to get everything put in place. But the expectation is we'll start seeing those savings pretty immediately. We won't get to a full run rate for a little while after that, though.

Taylor Mulherin - Deutsche Bank AG, Research Division

Okay. And then last question before I turn it over, kind of a longer-term thing. Can you talk a little bit about how you see your network evolving over time? What do you think the right mix is between Freight and Regional from a long-term perspective?

James L. Welch

I'm not sure if I totally understand what you're saying. What I see occurring at our company is to continue to leverage the value that those Regional carriers bring to the marketplace -- they're 3 very, very good companies. They serve 3 specific geographic areas of the country. They all have excellent service. They all have 3 great cultures. So we want to continue to just leverage the heck out of those companies. And at YRC Freight, as Jeff said, we still have a lot of work to do. We know we can do better over time. But it's a matter of continuing to refine the network. You have to remember that when they slammed Roadway and Yellow together in 2009, the network design was just done very, very poorly. We had too many distribution centers, too many terminals and it's just going to take a while to get that right size to where we want it. This last change of operations is a huge step in the right direction. But our goal is to get YRC Freight more competitive from an operating ratio standpoint. And we think all 4 companies together, once we accomplish that we'll be a powerful force in the North American LTL industry.

Operator

Your next question comes from the line of David Ross with Stifel.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

The pricing environment out there, could you comment on what you're seeing terms of underlying rate increases? I know there's a lot of unique things going on at YRC as you're adjusting the mix and kind of addressing some accounts that are apart from the general pricing tone?

James L. Welch

Dave, this is James, I'll make a couple of comments and then Jeff can jump in. I still think the pricing is rational for where we're at. But if you really think about going back to even 2008 when the economy went south along with the financial situation at YRC Worldwide going south, it created an interesting dynamic in the industry that I'm confident that it still hasn't recovered from. You had a couple of carriers, in particular, trying to put YRC Worldwide out of business during that time frame, certainly they haven't recovered yet and you also had an economic situation that really hurt the industry overall. So those are 2 really pretty powerful conditions that have set the industry back. I think, I still think the market is 10% or 15% too low. And I think you've even commented on that in a couple of your publications, Dave. But I think for where we are right now, the economy I think is still a little choppy. I think pricing is rational. But we really tried to leverage the value especially at the regionals that they provide to their niche and then we're trying to improve the value at YRC Freight every day. But we're doing pretty well with our contract negotiations. We call them customer-specific negotiated increases, CSNIs. We're still are hitting our targets and in listening to the other competitors' calls, it seems like we're right in there with what's happening on those increases at contracts, but Jeff, you want to jump in and say a comment?

Jeffery A. Rogers

The only thing I would say is it's competitive but still rational, is about where I leave it, David.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

One of the competitors commented that those increases are actually improving in the past months as shippers are getting concerned about second quarter capacity. Have you seen that at all?

Jeffery A. Rogers

No. I really can't comment about in-quarter stuff. I would just again, reiterate, it's still rational. Let's put it that way.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

And then, Jamie when you talk about workers comp, you guys are obviously, doing a nice job improving the claims there and then paying out more than you're getting in. Is that really just a slow process we're going to see a little bit of improvement every quarter? Or is there a period where we might expect that expense to take a stairs step down?

James G. Pierson

Actually very good question, David. In terms of where we are today, you have to think about where we were. We've come a long way in the last 12 months, 20%, 25% better hours between lost time injury basis now. We're continuing to see even improvements based on that base line. So we're improving over an already stellar year. The difficulty in answering the question is its really actuarially determined. So while we have, in our own forecast, a continuation of these types of what I consider good guys for the foreseeable future, there will be a period of time where that will go away.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So when you hit a certain year if there's a year that rolls off, that could be a big benefit?

James G. Pierson

We're looking at some of the older claims, David, that we're settling now. We talked about we're settling them faster than we have in recent history. So as soon as it reaches maximum medical indemnity, we're going to try to settle those claims as quickly as we can. But we're still levered in legacy claims that have some pretty high reserves on them. So what I would say is we would anticipate, to next year or so, to continue to see these good guys but beyond that, I think, they're going to start to dissipate.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then, James and Jeff, can you talk about, I guess, what you focused your people on to make these improvements at YRC Freight? Obviously, safety is right near the top. Are you just having them focus on 1 or 2 things a day, until the day, try to keep it simple and you get it right, because some thing's working there?

James L. Welch

This is James. I'll make a couple of comments and let Jeff jump in. I think Jeff has done a terrific job of just trying to reset the attitude and morale at YRC Freight. You just almost have to be here on a daily basis to see kind of the condition that the company was in when we all took over in late 2011 and he's just really kept it simplified. But very specific with what we're concentrating on and I'll let him jump in there, but I just wanted to give Jeff kudos and that he's basically taken a morale and worked hard to try to build that in. We're only as good as our people. We talk about all the technology and all the optimization and all the stuff that goes on in the marketplace from a fluff standpoint but in reality, it's still people doing what people need to do from a work and quality standpoint. And we are making a lot of progress there. I think that's helping drive a lot of the results. But Jeff can talk a little more specific.

Jeffery A. Rogers

Yes. One of the first things I'd like to say, I think I might have said it in one of the conferences is we want to try to simplify so that we can focus and then we execute. And we really are trying to keep it as simple as we can knowing that we're focused and all being just good truckers again. And I think if you keep it simple, it's easy for people to understand and then go execute. But we're really it's about being good at what we do and understanding where Freight's strengths are and that's what we try to focus on, Dave, and I think the organization has rallied around that. We're seeing good improvements but we've got a long way to go, anywhere close to being happy with what we're doing.

Operator

The next question comes from the line of Scott Group of Wolfe Research.

Carol A. Krakowski - Wolfe Research, LLC

This is Carol in for Scott. So you guys have been shrinking in freight for just about a year now in terms of tonnage, at least. Is that kind of still the plan as you guys are pricing through your accounts and kind of re-optimizing the network, is that how we should think about things kind of forward?

Jeffery A. Rogers

This is Jeff. As I commented, we started that pretty aggressive mix management about a year ago. So as you work through last year, the comps that we're looking at now, still compared to that a lot of aggressive activity. I don't think we need to continue with aggressive mix management so that's going to stop. We will constantly look for business that just doesn't work for us but we're not out there constantly looking to make major changes. Our expectation, our strategy for this year since we really have reorganized and refocused our sales organizational on what makes sense for us, I think, the organization knows that now. So our plan is to absolutely be focused on growing the right type of business that makes sense.

Carol A. Krakowski - Wolfe Research, LLC

Okay. And then with the network re-optimization and the change of operations you guys have announced, what happens with the terminals that you guys are shutting down? Are those treated the same way as the terminal auction that you guys had over the past year?

James G. Pierson

Some of those, Carol, are actually are leased, some of them are owned. So in terms of what we do with those terminals, will depend on where they actually lie within the ownership, within the structure. So the ones that are leased we'll either let them expire or buy them out so there will be some restructuring charges. The ones that are owned, we will most likely sell off.

Carol A. Krakowski - Wolfe Research, LLC

Okay. And do you guys have any debt coming up this year?

James G. Pierson

Excuse me?

Carol A. Krakowski - Wolfe Research, LLC

Do you have any debt maturities coming up?

James G. Pierson

No, we don't until February of 2014, the next major one.

Carol A. Krakowski - Wolfe Research, LLC

Okay. And then you guys are talking about some of the technology investments that you guys are making and the dimensioners and kind of the pilot programs and stuff like that. Which business is that part of? Is that in the Regional or the Freight? And how, kind of, are you thinking about managing those kinds of investments versus just generally liquidity and paying down deleveraging the balance sheet?

James L. Welch

We're currently testing the Toledo Mettler dimensioner at one of the Regional companies. YRC Freight is preparing to test one as well. Obviously, we want to continue to understand what that information is telling us compared to kind of how we view the pricing in a lot of that business today. Again, we certainly believe that the industry ultimately is going to go towards more of a dimension-based pricing philosophy. We want to be certainly in the mix with that and not trailing. So we're working very hard to be sure that we're able to stay up with that trend, and we think there's a payoff there.

Operator

The next question comes from the line of Chris Ceraso with Crédit Suisse.

Allison M. Landry - Crédit Suisse AG, Research Division

This is Allison Landry in for Chris. So it seems like the relationship with the union had been pretty cooperative. But given that you've been able to restore profitability arguably faster than expected, what are the Teamsters getting in return here? And could they try and come back and renegotiate some of the wage and benefit concessions earlier than expected?

James L. Welch

Well, certainly the cooperation -- this is James, certainly the cooperation with the Teamsters has been good, not only at YRC Freight but at the Regionals. What the Teamsters are getting today are still good paying jobs with excellent benefits. We are paying market wage or market rate wages and certainly above market benefits. So our employees are still well-paid compared to the industry. Our goal is to continue to find ways to work together as partners and they showed their true partnership spirit when helping us to work through this large change of operations that we're getting ready to implement. And at the YRC Freight those things aren't easy to work through but we've had good cooperation. We have worked really hard to be in front of the Teamster leadership on a regular basis showing them our results, talking to them about that we're trying to do. Two of our board members are IBT-appointed directors and 2 of our best directors. They've been very, very valuable to help us there. So I think, and I've been in this business a long time and I think our partnership with the union is better than it's ever been.

Allison M. Landry - Crédit Suisse AG, Research Division

Okay. And then just shifting gears a little bit to the balance sheet. I noticed that the days receivable worsened year-over-year and sequentially, so I was wondering if you could maybe give some color on that if there's anything driving that?

James G. Pierson

Yes, absolutely, Allison. This is Jamie. In terms of where the business is growing, it's growing in larger accounts, that generally have longer terms to pay so that's what you've seen, probably, more so on a year-over-year basis and sequentially. We are absolutely continuing to manage this as best as we can. If you look at our DSOs relative to the industry, still think that we're a top 1 or 2 within the space.

Operator

Your next question comes from the line of Brad Delco with Stephens.

A. Brad Delco - Stephens Inc., Research Division

Jamie, this one maybe for you and I think we've heard this now for maybe several quarters that you guys are performing better than your internal forecast and plans. But I imagine those are the same plans that you're sharing with the guys that are lending you money. I was wondering, does that trend of better than the planned performance give you any sort of leeway or room to either kind of renegotiate terms on the debt, considering the environment we're in or give you more opportunities to invest in some of the technologies you guys have mentioned that were driving some of these productivity improvements. I guess how should we think about what that's allowing you to do?

James G. Pierson

We update our forecast every year, Brad. So we actually do it as judiciously as you think that we would. In terms of what it does for us in renegotiating the terms of our debt, we still have about a $90 million to $100 million covenant cushion depending on which company you look at. There's really no need to look at it from that perspective. In terms of CapEx, we're still way below what we are allowed to do there. So the credit agreements are not limiting us on what we can do with our investments and our EBITDA covenants.

A. Brad Delco - Stephens Inc., Research Division

Got you. So when, I guess, you think about your capital budget, where do you think the capital going forward, I don't think you guys give guidance in terms of CapEx, but what would drive the best return right now? Is it newer equipment, is it some of these dimensioners? How do you think about where that capital will be allocated and what internally are you seeing driving the best returns?

James G. Pierson

Well, first and foremost, where we get our best returns is our operational improvements that we're running through the business today. That has more to do about disciplined focus and accountability than anything else. As you talk about equipment, we are arguably still a couple years beyond what we want to be on a revenue equipment basis. But technology candidly, Brad, is where we're going to see the big pops. We've got these handhelds that we're rolling out right now and they'll come out within -- across the organization by the end of June or July. We have big aspirations for those and not only when they hit the market this year but going forward, we'll be able to load additional software on there that will actually help productivities as well. So if you have to rank them, I think technology first and then revenue equipment second.

A. Brad Delco - Stephens Inc., Research Division

That's good color. And then James, one last question for you, maybe bigger picture. I know you guys have recently gotten some improvements in the network that lets you make longer term -- where do you think the network in freight needs to go in terms of whether it's a number of terminals or do you still see that shrinking or ultimately how much more is there left to do in terms of trying to optimize the network?

James L. Welch

Well, certainly at the Regionals, we are set and we like what's happening there and they're set just fine. At YRC Freight, we'll just have to continue to look and see where this next change takes us. We want to be sure that we're competitive. From a service standpoint, we want to be sure that we are minimizing our touches. We think that this change that we're getting ready to put forth will cure a lot of our inefficiencies from a line haul perspective. We had too many distribution centers. This is a matter of fact. So I don't anticipate there being a number of large changes coming up at YRC Freight because I think we're getting our network about where we want it. But we just have to see what happens with the economy, what happens with our plans and our ability to grow YRC Freight. And we think that we're better positioned than we were certainly, 6 months or 1 year, or 1.5 years ago, but we're pretty excited to see what this change will do from us or do for us from an operating standpoint and I think it's going to put us right where we want to be.

Operator

Your next question comes from the line of Art Hatfield with Raymond James.

Alex Scott

This is Alex in for Art. If I could follow up on Brad's question about the debt, it looks like you have significant number of maturities in 2014 or 2015, is that something that we can expect you to try to go back to margin and refinance and push that term out this year, or something that likely won't happen?

James G. Pierson

Yes, we don't comment, Alex, on capital market activities.

Alex Scott

Okay, very good. Then I guess as a second one then if I could ask, you mentioned the economy being a little choppy there. Have you seen any areas of strength in the network as far as geographically or end markets, any strength or weakness there?

James L. Welch

I haven't. Whether you're thinking about retail or automotive or manufacturing or imports. It all just seems a little choppy to me, not terrible, but not great. Jeffrey, you wanted to comment on that?

Jeffery A. Rogers

Funny thing, I think, and even somebody else, one of the other competitors on their call, kind of, said the same thing, it's 1 week we feel really good about one area and then the next week it changes and then it changes back. So it's extremely choppy and I think it varies by parts of the country depending on the week or the next week. I wouldn't say there's any huge strength anywhere and there's not any significant weakness anywhere. It's just kind of up and down all over the place.

Alex Scott

And April has been more of the same?

James L. Welch

Yes.

James G. Pierson

If you think about it, Alex, manufacturing continues to limp along. Slightly growing certainly not lighting the world on fire. Retail continues to do better, consumer sentiment actually is up and you saw the jobless report came out today pretty good. So it's just -- it goes with the media almost in some sense.

Operator

Your final question comes from the line of Tom Albrecht with BB&T.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

A couple of questions. James, I want to make sure I heard you correctly on something regarding equipment. I think you said 20% of your trucks and freight now, line haul are 2012 and 2013 models, is that correct?

James L. Welch

Yes, sir.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

And then over 3,000 trailers have been upgraded?

James L. Welch

They were correcting me just for a second, it's 20% of the miles, not the equipment.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Okay. Well, so my question is, then, regardless of the exact number of equipment, can you talk about what you plan to do this year? I know you don't want to talk about CapEx dollar wise, but maybe where those miles can go on newer equipments, since that is one of the stigmas in the marketplace about you guys having older equipment?

James L. Welch

It really shouldn't be a stigma, I mean, we are a couple of years older than what we would like to be. But when I'm out on the road a lot I see out a lot of our competitors [indiscernible] better than ours. We run a lot of miles at YRC Freight on our sleeper tractors and those are our new newest tractors and they're running 7 days a week, 24 hours a day. Obviously, as we get the ability, we will continue to replace and upgrade equipment as necessary. But I don't lose a lot of sleep over our fleet, despite what the rhetoric is in the public. Our equipment is decent. It's not like fine wine, no, it doesn't get better with age and we know that. But we certainly have plans, if we can continue to perform like we are, to make a lot of progress in that area.

James G. Pierson

Tom, this is Jamie, as well if I might add, I've said in the last couple calls that we're starting to get into a normal cadence on the CapEx. You're not going to see that really come on to the balance sheet as much as you're going to see it come on the road because we are starting to do this on an operating lease basis and actually, very well maintained on the existing units. Candidly, we're doing better on the maintenance expense basis than we even forecast. But again, I think more than anything else, you'll not going to see it come on the balance sheet. You'll see it come on the road as we start to put our back into buying that equipment and actually rolling it out across all of our operating companies.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Okay, that's helpful. And then the only slight negative I saw was at Regional. This is kind of the second quarter in a row where the operating ratio improvement was much smaller than what we were seeing. I'm wondering, how much of that is across-the-board? Or whether it's really centered in 1 of the 3 companies?

James L. Welch

Well, a couple of those companies really took a pounding with winter conditions where it's positioned. So overall, I was okay with the operating ratios at the Regionals, especially when you saw the impact that the winter weather had on one of them especially, but a couple of them in particular.

James G. Pierson

And what I'd say, Tom, as well, is that it's maybe slowing it's certainly still better than the market at whole and the fact that they're unionized and we're comparing against non-unionized competitors, they're still stroking it.

James L. Welch

Yes.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Yes, I know, at one point they're -- one of the companies, I know you do not wanted to name names lagged operationally from the other 2. Is there still a significant gap in its execution and its profitability versus the other 2?

James L. Welch

No, it's improved. We're pleased with all 3 Regional companies.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Okay. All right. And then the last question, I wanted to make sure I don't infer too much but I don't know if it was you James or Jeff that's talked about because of the service being restored, it almost seems like you could read through that pricing might begin to accelerate because now your service is on par or better than some of your key competitors. Is that too much of a read-through?

Jeffery A. Rogers

Yes, Thomas, Jeff. A little bit. I would say it allows us to stay competitive with everybody else because our service has gotten back and is competitive so I wouldn't expect our pricing to necessarily accelerate because our service is better. But it sure gives us a chance, along with everybody else, to be competitive from a pricing perspective.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Okay. I just thought of one more. How much does a dimensioner cost? I've heard all sorts of price points. I don't know if you can share approximately what you're spending in your initial foray?

James G. Pierson

Yes, I know. We actually don't comment on the cost of those actual units.

Operator

I would now like to turn the conference back to James Welch for any final remarks.

James L. Welch

Okay, hey, thanks again for joining us for the call today. I think you all know our strategy. We're going to return the company back to its roots. We're truckers. We're proud to be the original LTL company and we've made steady consistent progress. Our team knows that we need to do better. We've termed the year 2013 as the year of performance. We're not where I want to be or where the team wants to be, but we're focused and we're heading in the right direction. So we appreciate again you listening and that concludes our call today. If you have any questions, please contact Stephanie and she'll be glad to help you out and we'll be glad to help you out. So operator, I'll turn the call back over to you.

Operator

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

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