YRC Worldwide's (YRCW) CEO James Welch on Q4 2015 Results - Earnings Call Transcript

| About: YRC Worldwide, (YRCW)

YRC Worldwide, Inc. (NASDAQ:YRCW)

Q4 2015 Earnings Conference Call

February 4, 2016, 16:30 ET

Executives

Tony Carreno - VP, IR

James Welch - CEO

Jamie Pierson - CFO

Darren Hawkins - President, YRC Freight

Analysts

David Ross - Stifel

Thom Albrecht - BB&T

Art Hatfield - Raymond James

Rob Salmon - Deutsche Bank

Scott Group - Wolfe Research

Operator

Welcome to YRC Worldwide Fourth Quarter 2015 Earnings Call. [Operator Instructions]. I would now like to turn the conference over Tony Carreno, Vice President, Investor Relations. Please go ahead.

Tony Carreno

Thank you, Laura. Good afternoon. Welcome to YRC Worldwide's Fourth Quarter 2015 Earnings Call. James Welch, Chief Executive Officer of YRC Worldwide; Jamie Pierson, CFO of YRC Worldwide; and Darren Hawkins, President of YRC Freight, will provide comments on the fourth quarter and full year 2015 results and will be available during the question and answer portion of today's call.

Before we begin, I must remind you of the inherent uncertainties and 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 laws. These forward-looking statements and all other statements that might be made on this call which are not historical facts are subject to uncertainties and a number of risks, and thus, actual results may differ materially. This includes statements regarding the Company's expectations, assumptions of future events and intentions on strategies regarding the future.

The format of this call does not allow us to fully discuss all of these risk factors. For a full discussion of the risk factors that could cause the results to differ, please refer to this afternoon's earnings release and our most recent SEC filings, including our 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. Today's release also includes a reconciliation of operating income or less to adjusted operating income and operating ratio to adjusted operating ratio on a consolidated and segment basis.

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

James Welch

Thanks Tony and good afternoon everyone. We appreciate all of you taking the time to join our fourth quarter and year end 2015 conference call. I will make a few comments and then let Jamie recap our financial results. Darren is also here to review the performance of YRC Freight and then we will gladly take your questions. Overall I'm pleased with the progress YRC Freight and our regional carriers, Holland, Reddaway and New Pennsylvania achieved in 2015. We remain steadfastly committed to our strategy of improving price, freight mix and profitability over volume and market share throughout the year. As a result of that commitment and a nearly $90 million of year-over-year adjusted EBITDA improvement we believe that our strategy was the right one for YRCW.

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

Also believe that the foundation we formed in 2015 across all of our company's positions as well to drive shareholder value when a current inventory surplus clears up and the manufacturing portion of the economy starts to expand again. I'm also pleased with several other accomplishments we achieved in 2015 which should help us continue moving YRCW in the right direction. Number one, I'm proud to announce that the eligible union employees at Holland, Reddaway and New Penn will receive a profit sharing bonus equal to 1% of their 2015 W2 wages. From all we can research this is the first time in the history of the auto industry that a carrier has paid out a cash profit sharing bonus to its unionized employees.

Personally speaking I'm excited to see our hardworking employees sharing the success and results they're responsible for. The good news is there is even more opportunity going forward as our performance improves so does their profit sharing opportunity up to 3% of their respective W2 wages. We thank them for their hard work and we look for these employees driving continued improvement in the regional carriers operating results in 2016 and beyond. Even though the financial performance of YRC Freight did not allow those employees to participate in a profit sharing bonus in 2015 we’re still encouraged by their operational and financial improvement.

YRC Freight and its employees have come a long way but still must continue improving to reach the minimal profit sharing threshold of 97.0 operating ratio. I'm confident in Darren and his team and believe that everyone from our front line employees all the way up to the leadership team are working hard to improve the company's performance.

Now that all of our union employees realize their profit sharing bonuses are attainable and indeed can and do pay when we perform we look forward to all of them working toward the goal to receive a cash payout for 2016.

Number two, another one of our 2015 accomplishments whilst to continue progressively reinvesting in our business between capital expenditures and the capital value of leased equipment, we invested $239.7 million in our company, an increase of 98.1 million over 2014 and despite our large increasing in capital expenditures we ended up 2015 with slightly higher liquidity than one year ago. Number three, to that end and in late 2015 we moved aggressively forward to start the installation of NCAP safety equipment and approximately `15,000 of our tractors. We anticipate that the NCAP installations will be substantially complete by the end of the first quarter of 2016. We also will have the latest and greatest safety technology and every new tractor we take delivery of going forward.

We are very serious and dedicated to our goal of being the safest carrier on the road. Our drivers appreciate the fact that we are making the financial investment to help them better navigate the increasingly dangerous driving conditions that they face every day in a world with more congested roads and distracted drivers. Number four, we also make progress and working diligently to upgrade our operating technology from becoming an industry leader in the application and integration of dimensioners to installing technology that has proven successful and optimization we at a seven year high with our investment technology.

We’re also working with improved P&D software packages the compliment new and improved handheld devices that should make us even more efficient. These technology investments should help us continuously move forward in a meaningful way. So building on these accomplishments, our goals in 2016 will look very similar to what we have been focusing on as our results have improved and in three areas. Number one, continued yield improvement with a balanced and thoughtful approach to growing volume, we expect to achieve this through increased investment in our salesforce including providing them with tools to make more tactful decisions on pricing activities.

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

Number three, improving productivity and operational efficiency with better technology and employing engagement efforts such as the profit sharing bonus opportunities. We hope allow our employees with shareholder value and handsome results. We still have opportunities for improvement. In closing out 2015 and starting 2016 we obviously would like for the freight environment to be better and improved throughout the year, but we will stay the course and remain focused on providing our customers excellent service, improving our freight mix and improving our profitability in 2016.

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

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

Jamie Pierson

Thanks, James. Good afternoon everyone. For the full year 2015 we reported consolidated revenue of $4.83 billion, down from the $5.07 billion reported in 2014 with a vast majority of the decrease coming from a decline in fuel surcharge revenue and softer volumes especially in the back half of the year. For context, the price of diesel was approximately 30% lower in 2015 than it was in 2014. In terms of consolidate operating results we reported operating income of 93 million compared to 45.5 million reported in 2014, excluding the $28.7 million non-union pension settlement charge at YRC Freight in the fourth quarter, adjusted operating income was a $121.7 million. This non-cash charge is a result of an increase in lump sum benefit payments under our non-union defined benefit plans. In an effort to continue derisking our balance sheet we offered a voluntary lump sum payment option which in turn reduced our long term pension obligation and ongoing annual expense. The payments were funded from existing pension fund assets and therefore did not impact the company's cash balance or liquidity and as per our term loan agreement the settlement charge is excluded when calculating adjusted EBITDA.

As James indicated earlier our full year 2015 adjusted EBITDA was 333.3 million, an increase of 88.8 million over the last year and a 210 basis point margin improvement to 6.9% compared to 4.8% last year. For the fourth quarter of 2015 we reported consolidated revenue of 1.14 billion down from 1.22 billion in 2014 and an operating loss of 15.3 million compared to operating income of 31.2 million in the fourth quarter of 2014. Excluding the 28.7 million non-union pension settlement charge of YRC Freight adjusted operating income was 13.4 million and finally we reported consolidated adjusted EBITDA for the fourth quarter of 66 million compared to 77 million in 2014.

Now for the year-over-year segment stats, for the full year of 2015, YRC Freight's tonnage per day was down 5.8%. Revenue per shipment including fuel surcharge was up by 1.7% and revenue per hundred weight including fuel surcharge was up by 0.8%, our weight per shipment increased 1.5%. Excluding fuel surcharge revenue per shipment was up by 7.7% and revenue per hundred weight was up by 6.1%. Those same stats for the fourth quarter of 2015 are as follows. Tonnage per day was down 6.8% which was comprised of decreases of 5% in October, 8.6% in November and 7.2% in December. Revenue per shipment including fuel surcharges down 1.5% and revenue per hundred weight including fuel surcharge was at 1.6%, while weight per shipment was essentially flat with prior year. Excluding fuel surcharge revenue for shipment was up by 4.4% and revenue for hundred weight was up by 4.2%.

Turning to the regional segment for a moment, the full year 2015 tonnage per day was down by 1.9%. Revenue per shipment including fuel surcharge was up by 0.2% and revenue per hundred weight including fuel surcharge was down by 0.7% while weight per shipment increased 0.8%. Excluding fuel surcharge revenue per shipment was up by 5.6% and revenue per hundred weight was up by 4.6%. For the fourth quarter of 2015, the regional segment also experienced a decline in tonnage per day. For the quarter it was down 2.6% which was comprised of a decrease of 0.1% in October, 3.9% in November and 3.9% in December. Revenue per shipment including fuel surcharges down 2% and revenue per hundred weight including fuel surcharge was down by 2.2%.

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

Turning to the segment and financial results for a moment. For the full year of 2015 YRC Freight's operating income was $18 million compared to an operating income of just $500,000 in 2014. Excluding the impact of $28.7 million pension settlement charge the full year 2015 adjusted operating income was 46.7 million. Adjusted EBITDA was a 167.2 million for a margin of 5.5% and a $67.4 million increase compared to last year. For the fourth quarter of 2015 YRC Freights operating loss was 21.4 million compared to operating income of 24.5 million in 2014.

Excluding the impact of the $28.7 million settlement charge, YRC Freights adjusted operating income was $7.3 million. Adjusted EBITDA was 36.8 million for a margin of 5% and a $7.2 million decrease compared to last year. On the other hand the retail segment reported full year operating income of 85.4 million compared to 66.1 million in 2014.

On an adjusted EBITDA basis, the regional segment reported a $21.5 million increase to a $165.9 million. For the fourth quarter of 2015 the regional statement reported operating income of 9.5 million compared to income of 10.6 million in the fourth quarter of 2014, and adjusted EBITDA was 30.2 million for a margin of 7.4% and a $3 million decrease compared to last year.

In terms of liquidity, our cash, cash equivalent and managed accessibility under our ABL facility at December 31, 2015 was up approximately $11 million to $209 million for the same period last year. And we've been able to drive down our leverage ratio from 4.57 times just 12 months ago to 3.25 times this quarter. And as usual I would like to leave you with a few parting takeaways. Almost one year ago to the day on this very call we discussed four goals. One, improving safety performance, two, improving productivity, three, focusing on yield and four, continuing investing in technology. As it pertains to safety performance we ended the year with fewer work comp claims than we began the year. As we've stated before we plan to be substantially complete with our NCAP retrofit installation by the end of the first quarter of this year. In terms of productivity, this is the place where we still need to improve. While we saw some green shoots expressly in load average we're still lacking historical performance. We plan to continue investing in training, technology and employee morale to address and improve our productivity levels.

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

And not only did we deliver on our commitment to continue investing in technology but in 2015 we spent nearly $8 million more than we spent in 2013 and 2014 combined. Finally as we've previously indicated we expect to start facing tougher year-over-year yield and revenue per shipment comps going forward. This is especially true on an ex-fuel basis.

Obviously including fuel, we along with everyone else in this space are already facing those headwinds and as you think about 2016 I want to remind everyone as we continue refreshing our fleet we anticipate incurring the increased lease expense that goes along with it. As discussed on previous calls this incremental lease expenses were pressure adjusted EBITDA margins as will the annual union wage and anticipated healthcare increases as well.

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

Darren Hawkins

Thanks, Jamie Pierson and good afternoon everyone. The YRC Freight leadership team believes that professional employees value scale of coverage and deal speed service network that we bring to the marketplace positions us well for the long term. We will stay the course on yield and network efficiency efforts while focusing on bringing in the right freight at the right price. This approach was validated in 2015 with year-over-year improvements and revenue per shipment and revenue per hundred weights. Yield efforts are lapping strong year over year comparisons while demand is moderating. However the yield improvement we achieved late in 2014 and throughout 2015 should continue to pay dividends in 2016 and beyond as we build from that stronger base price that has been established.

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

2015 investments and revenue equipment technology, safety dock operations and dimensioner should carry momentum into 2016 For example, over 25% of the internal network miles in 2016 are projected to be on YRC Freight tractors that are less than one year old, driving improved safety, increased fuel efficiency and decreased maintenance expense. Dock operations are expected to benefit from a fully deployed dimensioner program, upgraded forklift technology and wireless dock tablet technology in all of 23 of our distribution centers.

Network optimization investments made in 2015 will be in use starting in Q2 2016 and will be further complemented with ongoing investment in 2016 that we expect to dynamically reduce empty miles and create density in the right places. This should protect service standards and our dual speed network that includes standard ground only economy side and time critical on the priority side. The beginning of 2016 has economic uncertainty for sure, the YRC Freight expects to focus on controlling costs, driving yield inefficiency while putting safety first in everything we do.

YRC Freight's 2016 goals that will likely sound familiar to many of you include what we consider our four foundational priorities. First is safety, we'll continue driving behavior toward world class safety through technology, training, communication and compliance. Second, service providing reliable standard ground, economy service and best in class time critical priority service through our dual speed network while continuing to provide one of the broadest portfolio of services in the industry. Third, efficiencies, productivity and quality lives through technology and automation of our service cycle and fourth, every one sells. Through a 1000 plus member sales and customer service organization we expect to continue balancing volume and yield progression. YRC Freight employees have the right attitude about being safe, being reliable and making a difference for themselves, our customers and our communities. I appreciate all their actions that continue to move us in the right direction.

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

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question will come from David Ross of Stifel.

David Ross

James, there was some announcements recently about some new hires, it came out from competitors, Chad, Paul and Dan [ph], can you comment on I guess any changes going on with them coming on board or the reason for kind of the new management hires?

James Welch

YRC Freight [indiscernible] is sitting here, I will let Darren, answer that Dave.

Darren Hawkins

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

David Ross

And then Darren, on the line haul side you mentioned put in some maybe more optimization technology, you're looking at the network differently later this year. Does that involve any more imminent [ph] turns than in the past?

Darren Hawkins

It really focuses on the technology side of that, this work began last year. We're already have part of that in play right now and the extension that is actually some new off the shelf technology that is tailored just for YRC Freight that we will have up and running in Q2. It's really about the optimization of the range rather than a meeting turns setup. When you think about our network, I've got 325 sleeper teams, YRC Freight sleeper teams, we’ve got our internal line haul network with our single man drivers. We've got a rail operation and then an over the road PT operations. So when you put all those together it gives us a lot of different options in the way we run our network.

James Welch

I might add up that the reason that same technology at two out of the three regional companies as well in different stages of implementation and integration but we all like what we're seeing from this technology so it should help us as we move forward.

David Ross

And then last question is just on the regulatory front, with the ELD mandate coming through where do you guys stand on having those tractors fully outfitted with the onboard recording devices, I mean you talked about the in-cabin installations largely be done by the end of the first quarter, does that include EOBRs [ph] and all of them in addition to kind of dash cams and whatever else is going on.

James Welch

Our first priority is to get the NCAP safety technology implemented and we will have the ability with some of those applications to implement the electronic on-board recorders and we fully intend to be compliant with that by I believe September of 2017. So it'll be a gradual rolling over the next up year and half or two.

Operator

The next question will come from Thom Albrecht of BB&T.

Thom Albrecht

One of the things that I was looking at here was you had an exceptional performance at regional in the second and third quarters. The OR was around 92 both of those quarters and I know in the last several years your fourth quarter OR regional tends to be a lot worse. But I thought maybe given the progress in the second and third quarters that you might be able to manage closer to a 95, 95.5 OR yet you were still over 97 and deteriorated year-over-year. What was going on there besides the economy?

James Welch

We were still operating very soundly. We just had some volume reductions and kind of fought through that -- might have been a little slow to react perhaps with the labor adjustments but nonetheless I think they've positioned themselves well for the future. We’re still proud of the fact that it went from 66.1 million in operating income to 85.4 million, that’s a 30% improvement and we think we’ve got the momentum there that can come into to 2016 and get us where we want to be but certainly the economy had a pretty good hit especially at one of the regional companies where manufacturing is prevalent.

Jamie Pierson

If I can add Tom too, the things are is the -- the bonus, the performance pay that we added that was the headwind in 2015 versus 2014 and there is also the incremental vehicle that I spoke about in my prepared remarks. Between those two, that was probably a point or two of margin in total. So on a year-over-year basis excluding those two things probably are not too far apart from what you thought we would be.

Thom Albrecht

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

Jamie Pierson

The month of Jan, for the two what?

Thom Albrecht

The two operating companies, because you went through tons per day October, November December for regional and freight.

Jamie Pierson

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

Thom Albrecht

Okay. Well but I mean when I look at freight there's a big variance between minus 5 and minus 8.6, are you saying that that was 6.8, 6.9 is kind of the number you around January so year over year tonnage decline?

Darren Hawkins

You’re exactly right, that November we had our high point at 8.6 and then improved in December and then January was also an improvement over November.

Thom Albrecht

Okay and then how about regional consistent with that 3.9 drop in November and December or what?

Jamie Pierson

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

Thom Albrecht

And then Jamie on the rents in that, I'm estimating that rents which are in that purchase transportation line are at least 2% maybe 2.5% revenues. How close is that guess?

Jamie Pierson

Are you talking about for the quarter or for the year?

Thom Albrecht

Well for the quarter which would kind of established the run rate and I'm sure we increase out a little bit next year.

Jamie Pierson

It's 2.5, that's about right. That’s exactly right.

Thom Albrecht

By 2.5?

Jamie Pierson

Between 2% to 2.5% on a consolidated basis.

Thom Albrecht

And then I guess the one thing, James I guess this is for you. You're in a situation where morale come a long way but probably still could have a little bit of room to improve. You've got an economy that's presenting some challenges. What can you do to sort of hurry up the recovery at freight while you've got this window in ‘17 and '18, '16, '17 before kind of get into a countdown in '18 I guess is what I'm saying. What can you do if the economy is not going to help you?

James Welch

Certainly from an overall morale standpoint the 1% profit share bonus that we're going to pay to our regional current employees will certainly will help that morale. I can tell you that YRC Freight is working diligently through some outside engagement, through employee training, employee communication, [indiscernible] meetings, there is no lack of effort there to get employees to try to do what we need them to do. And I wouldn't say that the morale is bad at YRC Freight it's just gone on a different path over the last six or seven years that we've had to try to turn around versus what our regional carriers have undergone. They didn’t have to go for the massive integration and so it's a little easier at the [indiscernible] companies in my opinion but Darren, I will let you jump and talk a little bit more about that.

Darren Hawkins

Yes, I think I would start by saying you know throughout the year in 2015 we had the best adjusted EBITDA performance since 2007 and in the middle of that we were making investments and dimensioners, revenue equipment, technology, safety, dock operations and fully deploying and implementing a number of really large projects that are now in place and pay dividends in 2015 but in a great position to pay dividend in 2016. So those investments in technology that's allowing our staff's operations and our network to run more efficiently, the line haul technologies from an optimization standpoint, we've got the new wireless infrastructure and all of our distribution centers. We upgraded our forklift technology. We've got equipment statusing [ph] improvements that has a big impact on the way we run our line haul network. The investments in our fleet, they will drive the fuel efficiency, reduce the breakdown related cost, they will also drive employee engagement from the new tractor standpoint. We've got a initiatives in place to continue the engagement of our employees and allowing them to have a voice in all of these processes. And then also those investments extended into equipment services and the way we manage our parts inventory and lastly I'll say we've also added a dedicated resource around our office procedures, Tom that sets us up for the best position I believe the company has been in from an execution and efficiency standpoint since I've been President.

Now certainly we don't have the yield opportunities like they were over the last six quarters for the next few quarters. But we're in a great position with the base we built with the yield piece and we’re going to continue focusing on that piece through the pricing technology investments we made. So I feel good about the balance we're looking at and certainly well prepared from a liquidity standpoint and the position we're in for whatever the economy throws at us over the next several quarters.

Thom Albrecht

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

Darren Hawkins

It will be paid in a couple of weeks.

Thom Albrecht

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

James Welch

I know it was four or five or seven year ago, hold on one second, 3.15. We were a little bit higher in EBITDA, debt didn't change that much, a simple math would tell you that it was three in a quarter from 3.15.

Thom Albrecht

And then refresh my memory, you laid out some target ORs regional and YRC over a two or three year period. I think the beginning of '15, was it 96, 97 for freight and 93, 94 or 94, 95 for regional?

James Welch

93, 94 for regional and 95, 96 for freight.

Thom Albrecht

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

James Welch

Yes. I think there's two things going on there, the market changes every day. We made that statement at a point in time when the market was probably 91, [indiscernible] probably in that 91 to 93 range. In terms of timing, I think we said and I'm dating myself now probably two quarters ago that it was a two year journey. So this is something that we thought we would put that coupon immediately. So we gave ourselves a little bit of time line on that time but in terms of the goals. Your memory is good in terms of what they were 93, 94 regional and 95, 96 at freight and some of these things are going to take time. The investment that we made in '15 on technology the fact that we doubled what we did in '13 and '14. It's not going to pay in at the end of the year, so in the fourth quarter of 2015 I didn't anticipate a lot of return from those technologies investments. Those investments in the return thereof will come really in '16 and '17.

Thom Albrecht

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

James Welch

I think that’s right I think the first quarter is going to be certainly the most difficult quarter of the year. But back to what Jamie and both Darren have been talking about with investments they were making in the company Tom, I really feel like fundamentally we're in the best position to move forward sort of since I’ve been back for over four years. If we can get a little momentum with the economy I really think we will do well but sort of the next 60 to 90 days will be difficult I think.

Thom Albrecht

Last question and then I will jump in the queue, 12 months from now where would you like that debt to EBITDA ratio to be or more importantly where would your banks like it to be?

Jamie Pierson

That’s a good tricky way of trying to give me to give you guidance and I appreciate that and I will gladly pass.

Thom Albrecht

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

Jamie Pierson

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

Operator

And the next question is from Art Hatfield of Raymond James.

Art Hatfield

If I could just clarify on the bonus payment while it's getting paid in a couple weeks it was a crude in Q4 '15, is that correct?

James Welch

It was, you know as we went through the year, Art, we weren’t for sure that we would hit that target OR and we hadn't accrued as we went into the fourth quarter but as the year progressed luckily and good for them, they were able to keep performing and hit that target so accrued in the fourth quarter.

Art Hatfield

And my guess or my calculation on that it was somewhere around $3 million, is that close?

James Welch

That's more than that. It's about 5.5 million.

Jamie Pierson

And that’s some of the margin headwind that you're looking at on a year on year basis.

James Welch

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

Art Hatfield

I totally agree it's helpful because we obviously me, I don't know about anybody else we're not modeling for it. So it's helpful for comparative purposes and really where you fell out on the quarter. So you’ve made all these investments and Jamie you had mentioned some of the headwinds related to some of the expenses obviously those provide some benefit over time. What is it and I know you don't want to provide guidance but what is it necessary for you all in '16 to be able to continue your path of EBITDA growth?

Jamie Pierson

Yes, I think there's a couple of things Art, that I would focus on as a W [ph] organization which is continued yield improvement maybe not to the extent that we've experienced in the last four to six quarters. You know we've been very consistent that looking at 7% to 9% increases that we've seen at freight and probably 5% to 10% increases all ex-fuel obviously at the regional companies won't continue infinite item but do believe that continual yield improvement as long as everyone remains rational will certainly help, the return of 2015 and maybe into lesser extent 2014, the investments in technology and revenue equipment. We’re seeing the revenue equipment yield probably about 0.6 plus or minus more miles per gallon in our existing fleet and we drive a billion miles a year that tends to add up pretty rapidly. And then the last two things I would say is the return of the investment in our people and our productivity improvements that Darren spoke about earlier. So I'm not going to belabor those point but to answer your question on '16 and beyond, absolutely have to clip that coupon and then the last one which I don't think we can underestimate is the addition of some of the industry's best players in the space. The change of the people and the leadership and the way that affects our people morale across all the organizations I think has intangible benefits.

Art Hatfield

It's interesting in all that commentary that you did mention volume growth, am I my reading too much into that that you didn't mention that basically that should be an obvious one or is it something that really the opportunities on the expense side better yield management. You can get some growth obviously you can't have volumes decline forever. But in the near term that’s kind of the way to think about it?

Jamie Pierson

I think it's a period two different times, Art, and the reason I say that is the next two quarters I think James said it earlier. The next two quarters are going to be difficult. If you look at the PMI and the inventory sales ratio, we all know that there is a little bit of over-hang there, there is actually an industrial recession or at least softening in the market right now that we’re experiencing today, that we don't think is going to change a day or tomorrow, I think it's going to take a couple of quarters and maybe might even back half of 2017. So we don't want to get over our skis and start thinking that there's going to be volume growth in the industry and we are not right now going to go out and start pricing to actually get in that volume. We've been very focused on getting the right freight, at the right price. Less focused on volume and market share and a 100% focused on EBITDA, cash flow generation and shareholder value.

Operator

And the next question is from Rob Salmon of Deutsche Bank.

Rob Salmon

James, in your prepared remarks you had kind of talked to whether it was a target or kind of an underlying expectation to improve profitability in '16. Obviously the backdrop is a little bit softer and I think Art, was trying to get to this with his question earlier is how confident are you guys that you can actually grow adjusted EBITDA given the productivity benefits as well as the pricing in the tougher backdrop that we're currently in?

James Welch

We’re going to stay very committed to providing good service for our customers. I think one of our competitor said you know you just can't stop giving good service in January and February and we agree with that and certainly our services are better than it was it's outstanding at the regional companies and it's certainly has improved rather dramatically at YRC Freights and we’re proud of that and as Jamie mentioned we’re not going to overreact to tough conditions over the next 60, 90, 120 days however long it takes to get us moving again from an economic standpoint. But we do think the second half of 2016 will be better and we have the liquidity to whether whatever downturn that we're going to face those as Jamie mentioned in his prepared remarks. But it's not like we're just going to sit here and hope that things get better, we’re concentrating on productivity, on cost, on technology investments, but we also have a sales team that's out there trying to leverage the value that we bring to the marketplace. We've got some good things in the pipeline and so we’re mindful of the fact that we can't shrink our business forever and we’re going to be very selective and thoughtful as to how we go after business to be sure that it doesn't erode our yield. So there's just not one thing that I can focus you on that says that our EBITDA will improve in 2016 but there's a multitude of things, we're confident in that that we will move that $333 million number forward.

Rob Salmon

I will just try and dig into a couple of items, hopefully will get a little bit more of a quantification of some of the productivity benefits. I think it was Darren you had mentioned that about 25% of the internal miles are now being driven by one year or younger tractors, how much of savings are you realizing on those tractors and what did that look like for all of 2015?

Jamie Pierson

Let's see if I can help with that a little bit. In terms of tractors that we’re adding and that Darren -- I think a lot of this is going to have probably to do with the miles that we drive over the roads is with the current age of our fleet less encounter more miles and with the new tractors that we’re adding I think as I said earlier, it's like 0.6 mile per gallon improvement and it doesn't mean as much when diesel is at 220, you know what we’re not going to pass on that we’re going to clip that coupon. There is also a couple of other things that we’re going to get from this new tractors and that is the piece of safety's. They will have all the latest and greatest safety technologies, so we should get a small work comp and a bigger [indiscernible] injury pick up in a year or so as well.

Darren Hawkins

And Rob this is Darren, on those fronts. YRC Freight had a nice improvement in safety last year. We expect to further drive that with the NCAP technology but part of that safety improvement last year came from those new trucks that came online, the good thing about all the new tractors we brought on that completely refreshed that sleeper fleet that I mentioned earlier. So that 325 sleeper teams we have got which runs the most miles in the company are all of the new tractors and then along with that from a maintenance standpoint we see that benefit all year long and that's certainly in my internal planning for '16 is that we continue to benefit from all of those items.

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

Rob Salmon

I would imagine a lower maintenance expense there as well. What was the empty mile reduction you guys were targeting for '16?

James Welch

I haven't commented on empty mile reduction percentage.

Operator

And the next question is from Scott Group of Wolfe Research.

Scott Group

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

James Welch

We’re not going to give forward-looking statements guidance, obviously our goal is to improve EBITDA all over year. So I was trying to explain Rob that there's just not one thing that we’re banking on that will improve our EBITDA, it's a multitude of things but our expectation is not to go backwards.

Scott Group

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

James Welch

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

Darren Hawkins

And I will just comment in the fourth quarter for YRC Freight that was 5.6% for the quarter.

Scott Group

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

James Welch

3% to 5%. But what I would say in January, it's a very small sizes as we get the year started off we had a couple of big national accounts that were in the second year of their contract and so it's hard to really give a specific number in January at this range 3, 5, 6.

Scott Group

And then just last thing so ABF talked about some headcount reductions that they are doing with dock workers and some drivers, do you have the flexibility to do that and have you done any of that yet?

James Welch

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

Operator

Thank you. And this concludes our question and answer session. I would like to turn the conference back over to Tony Carreno for any closing remarks.

Tony Carreno

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

Operator

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

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